Being prequalified or preapproved for a mortgage can help you determine how much home you can afford. If you are a potential homebuyer hoping to secure a new home that is within your family’s budget, get prequalified or preapproved for a home loan and determine the mortgage payments you can afford for your dream home.
Either process, being preapproved or prequalified, will determine a homebuyer’s mortgage amount. The process you choose depends on several factors, like how much personal information you want to give the mortgage lender and how committed you are to buying a new home.
For potential buyers to get prequalified for a home loan, they tell the mortgage lender how much they earn and what debts they have. Based on that information, the lender crunches the financial numbers and offers mortgage payments he or she can afford.
For potential buyers to get preapproved for a home loan, they may need to give the mortgage lender documentation, such as bank account statements, recent pay stubs or income tax forms. The lender evaluates the homebuyer’s finances and determines whether he or she is eligible to borrow on a new home.
The biggest difference between the two is that when potential buyers get preapproved for a home loan, the lender is actually committing in writing to funding the loan, assuming the home appraises for at or above your purchase price. If you are relatively committed to the new home you have found, loan preapproval may be the best option.
With prequalification, there is no commitment from the lender. He or she just tells the homebuyer the maximum reasonable mortgage amount and the homebuyer decides whether or not to move forward. If you are undecided about becoming a homeowner, prequalification may be the simpler choice.
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