With the housing market slowing down and the end of the year literally right here, it’s smart to hedge your bets as a buyer with maximizing the perceived value you represent to a seller. With that in mind, let’s clear the air about “prequalified” versus “preapproved.” Sellers love preapproved buyers and, experts say, preapproval puts buyers in their best bargaining position.
Prequalification is the simple first step to buying a home. It gives you and your agent some parameters to work with.
You can go to any lender to get prequalified. The lender simply plugs numbers you provide into a formula that will give you an idea of how much house you can afford. The lender makes no promises to lend you this amount of money and the lender doesn’t verify anything you tell him. In short? Prequalified means only slightly more than “interested” for a seller or an agent.
Preapproval, on the other hand, tells the buyer that the lender has examined your credit report and income and has told you the maximum you can borrow, along with an interest rate you would qualify for. Preapproval is not a promise from a lender to actually issue the loan, but it DOES show you, as a borrower, have buying power, an interested lending institution, and have already taken some significant steps towards buying a home by establishing your budget.
While there might be a small fee for the approval (which is usually rebated at closing), it can open doors for your home purchase.