Preapproval vs. Prequalification

Preapproval vs. Prequalification

Buying a house can be overwhelming as many people will be able to tell you. Form the vast majority of items, each of which come with their own different options and flaws. Not too mention the locations of said houses, as well as the amenities available around them. The first step however is learning what the difference is between preapproval and prequalification.

Although most people start out with the assumption that these two terms are the same they do differ in some very distinct ways. A pre-approval is the most accurate option that a mortgage lender can give. It represents that after information was provided by you the lender was able to analyze your debt to income ratio as well as your credit history and the lender choosing whether or not you would be approved based on their current requirements.

A pre-qualification is a little less accurate as your credit report is not pulled, which of course allows for a greater margin of error when establishing how much the lender believes you can afford. This means that the mortgage lender is relying on you to provide all of the correct information in order to produce a correct pre-qualification. This represents a signifiant margin of error as the information you produce for the lender can be out of date or simply wrong. Many people would rather use a pre-qualification as less personal information is used but because of the lack of an accurate estimate they may be vastly disappointed when they eventually receive the actual amount of money they can afford to borrow.