While starting a home search, especially for first-time buyers, can seem terrifying where mortgage terminology is concerned. So what are prequalified and preapproved?
These two words, in particular, you should know them beforehand. This is because, while similar, they do have separate functions in the mortgage process. So, what is the difference between them and why does that matter to you?
The First Step
Firstly, once you decide to start your house hunt and have your budget, that’s where the prequalification process comes in.
It’s a simple process that determines how much a prospective homebuyer is eligible to borrow on a home loan. You can start the ball rolling by talking to an experienced professional such as Kenya Homes.
Moreover, you’ll share about how much money you make, what kind of assets you have and your debts. Then look at what your stated income is and what price range you’re looking at to make sure we meet the debt-to-income requirements.”
Furthermore, the primary benefit to getting prequalified up to a certain amount for a loan is that you are indicating to real estate professionals and builders that you are serious about looking for a home in a certain range.
Prequalification, however, does not mean that you are preapproved for a home loan.
What is your Purchasing Power?
Secondly getting preapproved is the next step, particularly if you want greater security and purchasing power for your home search. This can be important if you need to move quickly on buying a house. Or if you live in a hot market where houses in your price range are receiving multiple offers.
Preapproval means you are credit-approved through a financial institution pending the property you select. When you’re preapproved, you have the security of knowing that the only missing piece is the property.
Making sure your credit is in good shape is important because your credit score drives your interest rate. Therefore, this drives the total amount you will pay for your loan over the life of the loan.
Credit Score means that you pay your debts in time or you have no debts
The preapproval process, which typically takes seven to 10 business days, uses the information from prequalification and adds in verified documented information. You’ll be asked to provide more detailed financial information, such as tax returns, income and asset bank statements — and your credit report will be pulled.
Once you’ve been preapproved, you may be more appealing to sellers who are considering several offers on their property as your financing is already sorted. In a hot market, you have a difference between a 30-day contract and a 14-day contract. We’re talking about waiting for the appraisal (of the home) versus waiting to get fully approved.
By waiting to get preapproved, you could run the risk that you won’t qualify for the amount you want and lose the house. The last thing your agent wants is for the borrower wanting to go get a house and they haven’t looked at your tax returns and they determine you don’t qualify.
Know Your Credit History
Furthermore, take caution before you head to a bank to try to get prequalified or preapproved. It’s important to understand your credit history and that you can be proactive about knowing where you stand and fixing any problems.
Additionally, making sure your credit is in good shape is important because your credit score drives your interest rate. Therefore it drives the total amount you will pay for your loan over the life of the loan.
Buying a home is one of the biggest, life-changing moments in people’s lives. It’s stressful for the homebuyer and our job as realtors is to help guide the buyer and make the process as seamless as possible.
