Prequalification vs. Preapproval:
When you're starting the home-buying journey, you'll likely hear the terms prequalification and preapproval tossed around.
Is one better than the other? Do either guarantee that your offer will be picked amongst the other qualified candidates? Well, that totally depends on who you ask...
What is a Prequalification? It gives you an estimate of how much you might be able to borrow. Think of it as a preliminary financial snapshot.
Pros: Quick, no hard credit check (usually), helps you understand your price range.
Cons: Based on self-reported information, not a guarantee of loan approval.
What is a Preapproval? It provides an estimate of how much you might be able to borrow but the estimate is based off of financial documents you've provided. Those documents can include tax returns, paystubs & bank statements. They will likely run a credit check as well.
Pros: Stronger indication of borrowing power, shows sellers you're serious.
Cons: Requires more documentation, still not a guarantee of final approval.
Neither a prequalification nor a preapproval is a formal loan approval.
Both are valuable tools for homebuyers, but they are not binding commitments from a lender. Final approval only happens after underwriting, property appraisal, and all required conditions are met.
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