Buying a house is overwhelming. Plus the decisions and compromises made in the process are sometimes stressful. Should I get a condo and not worry about maintenance or should I get a single-family home with a backyard? Should we look for a home in a good school district or look in a more affordable area and consider charter schools? The list of questions is long but necessary.
Not only picking the right type of home, neighborhood and price is important, but also the financing part. Should I get preapproved or prequalified? What’s the difference between these two? Well, we may not be able to answer ALL your questions about your home search, but we’d like to answer this last question, since it’s asked frequently.
What Is the Difference Between a Preapproval and a Prequalification?
Most people are under the assumption that these two options are the same, but they’re not! In fact, one gives you a more accurate estimate of how much house you can afford.
Getting a Mortgage Preapproval
A preapproval is the most accurate option. It takes into account verbal information provided by you, in addition to looking into your credit report. This last part is key, since it allows your mortgage banker to assess your current debt-to-income ratio.
With all the reports in the news about the importance of keeping your personal information secure, it may be a little scary to provide your social security number to someone you just met. However, as long as you’re working with a reputable lender, you can rest assured that your info is safe and secure. The last thing a mortgage lender wants is to jeopardize client’s info and lose clients as a result!
Getting a Mortgage Prequalification
In a prequalification, your credit report isn’t pulled, which means that there’s a risk of getting a less-accurate estimate of how much you can afford. The mortgage banker has to rely on you providing an accurate estimate of your debt and credit score.
Some people may feel more comfortable getting a prequalification rather than a preapproval since no social security number is required, but the catch is that you won’t be as confident when shopping for a home since you’ll be wondering – “Can I really afford this house?”
Whenever you’re looking for a mortgage lender, make sure you ask them if they provide prequalification or preapprovals. Some people may use these terms interchangeably, but you now know that there’s a difference!
Become an armed buyer, and make sure you’re confident that you’ll be able to afford the home you’re interested in. Home buying is stressful already, so at least get some ambiguity out of the way and get your preapproval before you start your search.
This article originally appears on the Quicken Loans Zing Blog.
- Banking & Budgeting