Prequalifed vs. Preapproved: How Different Can They Really Be?Comment January 14, 2015 by Becky
If you speak with a realtor, they will tell you it is in your best interest to become preapproved for a loan rather than prequalified. But, really, what’s the difference? Below, we break-down the terms and explain the benefits of preapproval vs prequalification.
“Prequalified” means that a loan candidate meets the required conditions, is credit-worthy and is financially fit for a loan as determined by a loan officer.
“Preapproved” means that you have received a document from your lender, usually a letter, as proof that your employment, credit, and finances have all been verified. Preapproval letters usually include a dollar-amount for which you are qualified to receive, but are conditional and may be subject to other details as you get closer to choosing your home, such as approval of the property.
So what does preapproval get me that prequalification won't?
Prequalification is a step in the right direction, but doesn’t give your realtor a good faith estimate of what you can afford. Prequalified candidates’ financials have not been scrutinized and therefore often change once the loan application is submitted, and in the worst cases, can be denied.
If you are preapproved, your realtor can more precisely define criteria for you as you search for your new home. Realtors use a system called MLS (multiple listing service) which is a database of every home for sale listed by a real estate agent (unless the property is exempt). MLS shares comprehensive information regarding the homes and properties, but is only available to realtors and property professionals.
With your preapproval and MLS, your realtor will spend more time looking for the right homes for you. With preapproval, you will gain the ability to negotiate. Sellers want an offer that is in good standing. Knowing that you have been preapproved, a seller is more likely to accept an offer, sometimes even below asking price, because you have proof that the lender has verified that you are a good candidate.
Since you were preapproved prior to searching for your new home, your loan application can be processed immediately, cutting down your wait time for signing the home ownership documents (also known as a closing). In a bidding war with a prospective buyer, this could give you the upper-hand.
Becky - eCommerce Manager