The terms “prequalification” and “preapproval” are often used in the context of obtaining a mortgage, but they have distinct meanings and implications for your homebuying journey.
Understanding what you are submitting with your home purchase offer can make a significant difference if you are trying to purchase a home in a competitive market. Generally, seller’s want the highest price WITH the best chance that the deal will close without delays or problems. So, in addition to making a solid offer, sellers will also assess the strength of a buyer’s financing offer. This is where preapprovals can make a difference.
Prequalification
- Definition: Prequalification is an initial evaluation of a potential borrower by a lender to determine the range of loan amounts the borrower might qualify for. It is an informal process.
- Process: The borrower provides financial information such as income, assets, debts, and credit score to the lender. The lender may or may not verify this information.
- Outcome: Based on the provided information, the lender provides an estimate of the amount the borrower might be able to borrow. This is not a guarantee, and it does not involve a thorough credit check or any underwriting.
- Purpose: It helps borrowers understand their budget and what price range they can afford. It can be useful in starting the home search process.
Preapproval
- Definition: Preapproval is a more formal and detailed process where the lender evaluates the borrower’s financial background to determine the specific loan amount they are eligible for. At GRB, preapprovals are issued only after they have been completely vetted by our underwriting team.
- Process: The borrower completes a mortgage application and provides documentation for income, assets, debts, and other financial obligations. The lender conducts a thorough credit check and verifies the provided information.
- Outcome: The lender provides a preapproval letter, which specifies the exact amount the borrower is approved for, the loan type, and the interest rate (subject to final approval and property appraisal). This letter is a stronger indication of the borrower’s ability to obtain financing.
- Purpose: Preapproval demonstrates to sellers and real estate agents that the borrower is serious and capable of obtaining financing, which can strengthen the buyer’s negotiating position.
In summary, while both processes help borrowers understand their borrowing capacity, preapproval carries more weight and reliability in the homebuying process.
Preapprovals at GRB
GRB offers preapprovals for a wide range of mortgage programs. Click to find out more about making your strongest offer with:
Lower down payment, great for first-time homebuyers
Financing options for rural properties
No down payment loans for military veterans
State of New York program for first-time homebuyers
GRB’s signature preapproval & guarantee program
Flexible options for unique properties or unique financing needs
Options for buyers who can make a larger down payment
