Prequalified vs Preapproved: Tips On Securing a Mortgage Before Buying a Home

by Gema Smith 12/15/2019

If you’re a first-time homebuyer, odds are you’ve thrown the words “prequalified” and “preapproved” interchangeably. However, when it comes to home loans, there are some very important differences between the two.

For buyers hoping to purchase a home with a few missteps and misunderstandings as possible, it’s vital to understand the procedures involved in acquiring financing for a home.

Today, we’ll break down these two real estate jargon terms so that you can go into the mortgage approval process armed with the knowledge to help you succeed in securing a home loan.

Mortgage prequalification

Let’s start with the easy part--mortgage prequalification. Getting prequalified helps borrowers find out what kind and what size mortgage they can likely secure financing for. It also helps lenders establish a relationship with potential customers, which is why you will often see so many ads for mortgage prequalification around the web.

Prequalification is a relatively simple process. You’ll be asked to provide an overview of your finances, which your lender will plug into a formula and then report back to you whether or not you’re likely to get approved based on your current circumstances.

The lender will ask you for general information about your income, assets, debt, and credit. You won’t need to provide exact documents for these things at this phase in the process, since you have not yet technically applied for a mortgage.

Prequalification exists to give you a broad picture of what you can expect. You can use this information to plan for the future, or you can seek out other lenders for a second opinion. But, before you start shopping for homes, you’ll want to make sure you’re preapproved, not prequalified.

Mortgage preapproval

After you’ve prequalified, you can start thinking about preapproval. If you’re serious about buying a home in the near future, getting preapproved will simplify your buying process. It will also make sellers more likely to take you seriously, since you already have your financing partially secured.

Mortgage preapproval requires you to provide the lender with income documentation. They will also perform a credit inquiry to receive your FICO score.

Mortgage applications and credit scores

Before we talk about the rest of the preapproval process, we need to address one common issue that buyers face when applying for a mortgage. There are two types of credit inquiries that lenders can perform to view your credit history--hard inquiries and soft inquiries.

A soft inquiry won’t affect your credit score. But a hard inquiry can lower your score by a few points for a period of 1 to 2 months. So, when getting preapproved, you should expect your credit score to drop temporarily.

After preapproval

Once you’re preapproved for a mortgage, you can safely begin looking at homes. If you decide to make an offer on a home and your offer is accepted, your preapproval will make it easier to move forward in closing on the home.

Once the lender checks off on the house you’re making an offer on, they will send you a loan commitment letter, enabling you to move forward with closing on the home.

About the Author
Author

Gema Smith

Gema S. Smith has been an influential pioneer in the luxury real estate industry for over 30 years. With a reputation for providing first-class service and garnering impeccable results for her clients, Gema’s accomplishments have earned her mentions in San Jose Magazine as well as two State of California Senate Certificates of Recognition. 

Unapologetically persistent, tenacious in her negotiation and passionate about developing genuine trust with her clients, Gema brings her best-in-class service and award-winning approach to The Agency, with a focus on the high-end market of Silicon Valley. Previously, Gema served as a Broker Associate with Intero Real Estate Services in San Jose, where she was a consistent top producer and recognized as a Top Listing and Sales agent for the company’s 15 corporate offices. Knowing that every buyer and seller has their own unique story to tell, Gema is proud to play a role in her clients’ ongoing narrative and represent their best interests in what is often the biggest transaction of their lives. 

Gema has been an active member of the real estate community since 1987, getting her start in the loan business before obtaining her real estate and broker’s licenses. In 2002, she opened a real estate brokerage and loan company which she ran successfully until 2008, when she chose to focus her efforts on real estate sales full-time. Gema is a long-time member of the Santa Clara County Association of Realtors (SCCAOR) and California Association of Realtors (CAR), as well as a Certified REO & SHORT SALE Specialist with The Five Star Institute. She is also a two-time Santa Clara County Chapter President of NHORA (National Hispanic Organization of Real Estate Associates) and currently sits on the NHORA National Board of Directors. 

A passionate philanthropist, Gema sits on the Board of Directors for the Jose Valdes Math Institute. Her commitment and dedication to the advancement of educational opportunities to underserved communities defines her character. In her spare time, Gema enjoys gourmet cooking, entertaining family and friends, wine tasting, reading, jogging and traveling.