Mortgage Preapproval vs Prequalification

Posted by Cris Klenke on December 28, 2022

Cris Klenke

Home buying paperworkBuying a home, especially if you are a first-time home buyer, is an emotional experience - from excitement to nervousness and anxiety to joy. We want to take away the stress so you can focus on the good feelings. Being prepared is a great first step.

What Is Mortgage Prequalification?

Prequalification means that a creditor has done a basic review of your creditworthiness. Prequalification can be a useful tool to help you get an idea of how much you may be eligible for without an in-depth look into your finances or a commitment to a specific lender. It is important to keep in mind that prequalification does not encompass all relevant financial information and may mislead you.

What Is Mortgage Preapproval?

Preapproval is essentially applying for a mortgage without a specific home in mind. During the preapproval process, your lender collects all of your financial data and reviews your credit to provide you with a commitment of the amount you can borrow. Preapproval letters are generally good for up to 90 days, assuming there are no significant changes to your financial situation. The letter serves as proof that you are a serious, eligible buyer looking to make a significant purchase. 

How To Get Preapproved

Every situation is unique and has different documentation requirements. We recommend that, when you're ready to be preapproved, you contact a lender to discuss your scenario. Common documents that are required include paystubs, W-2's, bank statements, and tax returns.

 

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Preapproval Do's and Don'ts

Once you have been preapproved, it is important to keep your spending habits in check to prevent any changes in your approval status. While you are searching for your home, we recommend that you stick with your current payments, stay in your current job, and continue to build your savings accounts. 

Each time you apply for new credit, your credit is pulled and, while it may not take a huge hit, it could make a difference in qualifying for financing. Therefore, we recommend that you do not apply for new credit, close accounts, overcharge credit cards, consolidate debt, or make large purchases. If you need to obtain additional credit for any reason while you are in the preapproval/buying process, be sure to keep you lender in the loop as this could affect the overall picture of the financing for your home. 

 

The expert lenders at Osgood Bank are easy to work with. Because of our efficiency, we have a seamless process to help ease the emotional rollercoaster you may feel like you are on when purchasing your home. We are here to help you do well, be good, and buy the home you love without the headache so you can look forward to making memories under a new roof.

Research Mortgages

For more information on the preapproval process and other steps to buying a home, be sure to check out our Complete Guide To Buying The Home You Love. The guide will help you navigate the home buying process, from preparation to unpacking.



Topics: Budgeting, Financial Education, Personal Finance

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