What is the difference between a prequalification and a preapproval?

This question was asked on the Consumer Protection Finance Bureau's website and the regulator's answer is listed as:

"Prequalification is a lender’s estimate of how much you could be eligible to borrow based on information you supply. Prequalification does not mean you will get the loan. Prequalifications are usually free.

Preapproval usually means that the lender is ready to make you a mortgage loan based on the information and documentation you provided at the time you requested a preapproval. The preapproval will say how long it is valid for and may contain some other conditions for you to get the loan. Your lender may not require that you pay any fees except the cost of a credit report at this time."

However, that may not be the correct answer either.  Due to the new regulations that mortgage lenders have been living with since January (and some before that!), not all banks/lenders are comfortable issuing "approval letters".  Some banks are only giving out pre-qualification letters, some loan officers are not able to issue approval letters at all.

So the most important part of the letter you get with the offer to buy your home is what the actual letter says.  Read over the letter – if this is your mortgage approval, look at the letter and make sure what is on the letter is accurate.  If the letter is part of a purchase agreement on your home, look it over closely.

Some of the things you want the letter to have on it are:

-Purchase price

-Loan amount

-Expiration date

-Names of all buyers

-Type of loan (conventional, FHA, VA, etc)

-Loan term (30 yr, 15 yr, adjustable rate)

-If the new mortgage is subject to a property being sold

-Contact information for the loan officer and license information for the loan officer

You also want to know if you know and trust the loan officer.  I have had many realtors call me and ask if I know a specific loan officer before they accept a purchase agreement.  I also have had many realtors call me and ask for more information on the buyers that I have approved.  They want to know how much information I have and if I have seen credit reports, income and asset information.  

All of this can make a difference when you are in multiple offers on a home.  If your approval letter is very vague, it may mean the difference between your offer getting accepted or not.    The bottom line is that it doesn't really matter what the letter is called, it's more important to see what is in the letter.  It matters that the lender is thorough, detailed and has worked with the buyer to ensure that the transaction will close on time.

Leslie Vanderwerf,  NMLS ID#335509, American Mortgage & Equity Consultants, NMLS#150953 - Email - Website

 

Written By

Currently a Senior Loan Officer at Cross Country Mortgage LLC, it's hard to believe I have been in the mortgage business for more than 25 years and have worked with Sharlene since 2000! I love sharing mortgage insights here each week and helping people finance their homes. Listening helps me find the right program for you!

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