As you prepare to purchase a home, you’ve likely come across the terms “prequalified” and “preapproved.” Although they are often used interchangeably, it’s important to note the possible differences in the two, as one involves a hard credit inquiry versus a soft one, which could negatively affect your credit score.

However, being both prequalified and preapproved for a loan have great benefits in terms of obtaining a mortgage. In both cases, they help you determine the loan amount you might qualify for and shows sellers that you’re a serious contender when submitting an offer.

Prequalification

Prequalifying for a loan means the creditor has done a basic review of your financial situation to determine your creditworthiness. This might involve collecting information about your annual income, monthly housing payment, savings, etc. However, this information doesn’t always require documentation; it can often be self-reported. In addition, your lender could conduct a soft-inquiry to your credit to estimate what you qualify for. Getting denied at this stage means you can move on and avoid any real damage to your credit.

Preapproval

In contrast, preapproval can be a fairly complex application and review process. You may need to submit tax returns, proof of income, etc., and your lender will likely conduct a hard inquiry on your credit. This verification process may take a while for the lender to review, unlike the prequalification process, which can be snappy.

As we mentioned before, preapproval and prequalification are sometimes used interchangeably, so the best thing you can do when looking to obtain financing on a home is to see how your lender defines the service and ask your realtor which one has more credibility in your market.

Expert Advices

If you’re thinking about purchasing a home in 2022 but unsure how much you can afford, find out exactly through our our in-house mortgage lending company, Empower Home Mortgage. Get detailed payment comparison with only one credit pull. Call us now at 202-759-1266!

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