Prequalified vs. Preapproved - What's the Difference, and Does it Make a Difference?
If you’re in the market to buy a home, whether you’re a prospective first time homebuyer, or a seasoned homeowner, you’ve probably heard the mantra – get prequalified! Or… was it preapproved?
Wait, what’s the difference?
One of the first series of words out of my real estate mentor’s mouth to me when I first started in the real estate biz was:
- "Rule #1 in Real Estate – Make sure your buyer is preapproved!!!
- Rule #2 in Real Estate – Always Defer to Rule #1"
In hindsight, it makes perfectly good sense from all sides of the transaction. But for a highly motivated newbie agent like myself, had he not said those timely words, I would have found myself down a road of headaches and precious time wasted, of my clients’ and mine. How so you ask?
It’s extremely important that a buyer understands the difference between “Prequalified” and “Preapproved”. That difference can make or break a seller’s decision to accept your offer over another contender’s.
This essentially provides you and your lender an idea of your affordability – what, based on a quick snapshot issued in a relatively quick amount of time (sometimes you can determine your prequalification status through a lender’s website) of basic details about you (income, debts, etc).
This is a relatively lengthy and extensive process between you and your lender to determine the amount of funds you can actually qualify to borrow towards your future mortgage. The process involves information exchanges of income, credit checks, and a variety of other documentation, along with a loan application (based on the type of loan you choose, and lender requirements), where the lender assesses your income to debt ratio. With a preapproval, once an offer on a home is submitted and accepted, the lender awards the loan in the amount needed (based on specific terms determined between the borrower and lender). A little investment of time in the preapproval process can mean the difference between a ratified contract, or rushing back to the home-search drawing board.
As agents, we make this determination at the very beginning of client relationship. But every so often, clients may not understand the difference, or even realize whether they are or aren’t preapproved (or even prequalified). Buyers – it is very important to know your affordability, and if possible and appropriate, to get preapproved. You will save yourself time and heartache. A preapproval letter WITH your offer will set you apart from the rest. Real estate agents will attest to this, including yours truly, with my very first transaction – where my client had a preapproval letter in hand – this won her offer with the seller, despite being the last offer submitted among multiple offers on the home.
Remember, a preapproval will help your transaction go from this:
I hope you found this helpful! If you need assistance or have questions about the Northern Virginia/DC Metro area housing market, I’d love to help! Please feel free to contact me at the following:
NBI Realty LLC
Locally-grown DC area native and licensed Realtor