The Difference Between Prequalified and Preapproved

At Usaj, we know that going the extra mile in getting prepared can be the difference between winning and losing your dream home. The first step is often getting “prequalified” or “preapproved” by your mortgage lender.

While some people use those interchangeably, there are some key differences to note. Both terms generally mean that a lender has reviewed your financial situation and determined that you meet at least some of their requirements to be approved for a loan. The biggest difference is one is faster and less detailed, while the other is more in-depth. Let’s dive into both:

Getting Prequalified:

This is the first step in the loan process, and means you have completed a full loan application with your desired lender. You have provided rough estimates of your personal information such as income, current rent, savings, etc. but no documentation has been verified. Prequalification often involves a soft credit check, which can provide a high level look at the health of your credit. 

The soft pull of your credit will likely not affect your score, but it also may not reveal any red flags an underwriter will review down the line. For more information about how your credit score plays into home buying, click here. This step is preliminary, and does not offer any guarantees when determining your budget.

Getting Preapproved:

Being preapproved means you have provided some or all of your supporting documentation covering income, assets, and other items for your credit profile. Your lender has completed an initial, high-level review of those materials to verify or refine the information for your loan application. A preapproval provides a clearer picture of your budget, while also giving your lender direction for potential needs throughout the loan process. An underwriter will still need to review and approve your loan, but you are set up for the initial steps. 

Having a preapproval can provide negotiating power by putting you ahead of any competing buyers who haven’t done so. Your offer on a home is more relevant, and it gives the sellers involved peace of mind that you have done your due diligence. While this step does not guarantee you a loan, it is essential to check these boxes before moving onward.

Key Takeaways:

The mortgage process requires intense review of the most personal aspects of your financial life. When buying a home, it’s better to be prepared and ready to move forward with a realistic estimate of your budget and expectations. Knowing your estimated monthly payment before you start home shopping can save you time and money. Shopping for homes can be exciting, but it’s best to shop within a budget you can afford to avoid frustrations down the line. 

Having a written preapproval from your lender can also give you a competitive edge when viewing houses, as it shows sellers that you are serious and prepared to move forward with the home buying process. At Usaj Realty, we are connected with some of the top lenders in the Denver metro area, and can point you in their direction when the time is right. It’s clear that while being prequalified can move the needle when home shopping, being preapproved is the obvious winner when you’re serious about buying a home. 

Ready to start home shopping? Reach out to Usaj Realty and take the first step toward your home-ownership journey with us today!