When you are shopping for a home, the more prepared and knowledgeable you are the better. Prequalifying and getting preapproved for a home loan can make the difference between purchasing your new home and watching it go to another buyer. When you go through these two important processes, not only does it tell you more about what kind of house you can purchase, but it also lets other important people involved in the process know crucial information about you.
What do Prequalified and Preapproved Mean?
- Prequalification is a crucial first step when considering the purchase of a home. It means that you have given your lender enough information about yourself and your finances that he or she can tell you how much of a loan you can afford. This gives you a ballpark estimate of what kind of houses and locations you can pay for. You can end the process here or you can take the next step
- Preapproval is the step you take after prequalification. Preapproval requires some more paperwork but gets you preliminary approval for a loan up to a certain amount. The amount you will be preapproved for depends on your financial situation. You may have to pay a fee for processing but it is often refundable. After the previous two steps are taken, buying a home is that much easier because you have already done much of the paperwork.
How do Prequalification and Preapproval Give Me an Edge?
If you are prequalified and preapproved, your realtor will be able to whittle down your options based on your preferences and what you can afford. This will save everyone time and effort in the long run. It can also help to avoid the heartbreak that can come from falling in love with a house that you will not get approved for. Preapproval gives you the biggest edge with the seller of the home. When you let a seller know that you have already been preapproved for a loan amount, it gives you the upper hand. You will be able to effectively bargain based on the amount you are preapproved for and you will be more attractive to sellers because they know you are essentially guaranteed loan approval. When you are compared to prospective buyers who are not preapproved and still have to begin the process, you will be at an advantage because you will be able to purchase the house more quickly and decisively.