The Difference Between Preapproval vs Prequalification

The Difference Between Preapproval vs Prequalification

Did you know the most important thing you can do before buying a new home is to figure out your budget? In this video, I’m going to help you determine your budget so you don’t end up with a mortgage payment that kicks your butt. I’ll also explain the difference between being preapproved and prequalified so you’ll be best prepared to start shopping.

Preapproved Vs Prequalified

If you’re buying a new home, the most important thing you can do before you go shopping is to make sure that you’re buying a house within your budget. Of course, as a buyer, I’m sure you have a ton of questions about more than just the loan process. How do you determine where you’re going to buy? Should you be near work? Where are the schools? What is the best area for my budget?

Ultimately, the answer lies in what you can truly afford. You don’t want to fall in love with the home and then not be able to make the mortgage payment. This is why it’s extremely important to get preapproved before you go out shopping with an agent and not just be prequalified.

There’s a difference between being preapproved and being prequalified for a home. Basically, anyone with a heartbeat can be prequalified for a home. It means absolutely nothing. However, when you get preapproved, you’ve already gone through four or five steps. You’re also a lot more qualified in the eyes of the seller. In this hot market, it means a lot.

Getting prequalified essentially means you’re just giving verbal information to someone. They’re then saying, “Yep, go ahead and buy the home.” Getting preapproved, however, means you’ve submitted all the pertinent loan information and documents and the lender has verified those loan documents for you. They’ve then given you a preapproval letter. You don’t really know your budget until you’re fully preapproved.

The Advantages Of Preapproval

It’s important to remember that online calculators can only give you so much information. This is because there are a ton of other costs that may come into play in your monthly mortgage payment. In addition to the mortgage payment, you’re going to have taxes, homeowners’ insurance, possible homeowners association dues, and private mortgage insurance. People get their butt kicked when they’re not paying attention to those other fees.

If someone has already preapproved you for an exact price point, that’s not an appropriate preapproval. The reason for this is because those other fees can all vary from property to property. You might be looking at one house that’s $250,000 on one side of the street with $2,000 in taxes. Go across the street and another $250,000 house might have $4,000 in taxes.

This is why the first step in the process is to get preapproved and not prequalified. That way we can determine your true budget and what range of house prices you should be shopping in. You can then pick a monthly payment that you can stick with. It also allows your realtor to set some criteria for you in their searches and get you looking at appropriate houses for yourself and your budget. It’s never too early to get your financing in line.

The Kick Butt Mortgage Guide

Buying a house is exciting, but it’s first and foremost an investment. Part of that investment is getting a kick butt mortgage and terms to maximize your return. And part of getting a kick butt mortgage is educating yourself on how the loan process works.

That’s why I wrote my Kick Butt Mortgage Guide A to Z book. Make sure you get your free copy today. This book will give you the A to Z of obtaining a mortgage and will help you pick which mortgage is right for you. Regardless of what kind of property you’re purchasing, knowing your numbers is the most important part.

If you have any additional questions for me, feel free to reach out and I’ll be happy to help!

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