Loan Preapproval/Prequalification

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Preapproved vs. Prequalified

When contemplating the purchase of a home the first question one usually asks is "How much can I afford?" This is a fair question and it is very important because you do not want to be looking at homes you cannot afford to purchase.

A prequalified loan is where the lender estimates the amount you can afford to borrow. This is usually done without a credit check and is simply based on the information you provided to the lender.

A preapproved loan is when you actually submit paperwork, usually associated with a fee, to the lender to whom you are requesting your loan. Your submitted paperwork is reviewed. The lender looks at your credit history and credit score (FICO), current loans, income...and makes a determination how much you will be able to borrow. The lender will give you a maximum amount of money you can borrow. The lender will provide you with an estimate statement of loan expenses and fee's as well as your estimated monthly payment. It is important to remember that you are not required or under any obligation to take this loan and you can change your mind or decide to go to another lender. However, you will be out your processing fee, if one was paid. You will have to be preapproved with the new lender before you can proceed. It is a very good idea in this market to get yourself preapproved so when you do find the right home you won't have to wait on preapproval and take the chance of losing your home. You will have your estimated monthly payment from your lender but keep in mind that there are additional expenses like property insurance payments, due twice a year in April and December. Property insurance can be significant depending on the purchase prices of your home. Some lenders will roll this insurance into your loan so check with your lender.

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