Do you plan to buy a home in Morris County’s Mendham Borough, Madison, Montville, or Mine Hill? If yes, once you’re ready to apply for a mortgage, you’ll come to know of terms such as “prequalification” and “preapproval.” For you as a potential home buyer, it’s vital to understand what these terms mean and how different they are from each other. Whether you plan to buy from someone who’s ready to ‘sell my house in NJ’ or a cash buying company that says “we buy houses in NJ”, knowing what mortgage prequalification and preapproval are is important. Having this clarity would guide your home search in Mendham Borough, Madison, Montville, or Mine Hill, and let you focus better on properties you can afford. And when the time comes, such knowledge would also help you decide the amount you should offer to prove to the seller that you’re a serious buyer.
Mortgage prequalification vs. preapproval – the definition
Prequalification is the first step in your home buying journey. It would typically take 1 to 3 days to receive your prequalification letter. Mortgage prequalification involves supplying the lender or bank with all your financial information, including the details of your assets, debt, and income. The lender will also let you know about different mortgage options and ask you what you’re anticipating to get out of your mortgage. Next, the lender will assess your financial information to arrive at a ballpark figure, which would be the amount of money that you might receive.
It’s important to note that the actual amount of money you obtain for the loan may not be the amount you’re prequalified for. That’s because your lender won’t check your credit reports or conduct an in-depth digging during the prequalification process, but these would be done during the mortgage preapproval process.
Mortgage preapproval is the next step after you’re prequalified for a mortgage loan. It’s as close as you can get to validate your creditworthiness even when you don’t have a purchase contract in place. It could typically take about a week to get preapproval after you’ve applied for it.
Compared to prequalification, preapproval is much more detailed. Before you go on house hunting and plan to buy a property from a company that says ‘we buy houses in NJ for cash and sell them fast’, you need to know what prequalification is and how to get it.
For it, you must fill out an official mortgage application. When submitting this application, you’ll also need to provide your lender with extensive documentation required for the financial background and credit checks, such as your pay stubs, W-2, tax returns, and bank statements.
Your lender will review and assess this information to tell you the amount of money that you’ve been preapproved for. The lender will also discuss interest rates and could even lock in a rate right away. However, you should remember that the amount of money you’re preapproved for doesn’t guarantee you’ll get the same amount as your loan.
Points of difference between mortgage prequalification and preapproval
- Credit history check: Prequalification doesn’t need it while preapproval does.
- Mortgage application: You don’t need to fill it out for prequalification but must do it for preapproval.
- Financial review: Prequalification doesn’t involve reviewing your finances while preapproval does.
- Application fee: You don’t need to pay an application fee for prequalification but might need to shell it out for preapproval.
- Down payment estimate: Prequalification doesn’t need an estimate of the down payment, unlike preapproval.
- The amount of money you can borrow: Prequalification gives you an estimate of the amount of money you can borrow while preapproval gives you a specific amount that you can borrow.
- Loan interest rate: When you prequalify, you won’t get information related to your loan interest rate but you’ll get it when you’re preapproved.
You should keep these differences in mind when planning to buy a home either from a direct seller who’s ready to ‘sell my house in NJ’ or a cash buying company that promises ‘we buy houses in NJ and sell them fast’.