A mortgage preapproval is where you talk to a mortgage broker or mortgage professional and complete a mortgage application, including providing preliminary paperwork to support the details in your application.
It is very important to understand exactly what needs to happen to be fully preapproved versus only prequalified. I say this because many banks and mortgage professionals misuse the term preapproval and are in fact only doing mortgage pre qualifications. Let me explain further.
What Is Pre-Qualification?
A mortgage prequalification is an in-depth conversation where you share some information about your employment, income, current debts, and credit to see how much you can qualify for in terms of a mortgage amount. With a mortgage prequalification, you are not providing any paperwork to confirm any of the details you are providing. This means it is just a conversation around your situation but yet you may be told yes you will qualify, and this is how much you will qualify for.
What Is Pre-Approval?
Whereas with a mortgage preapproval, the information you provide is verified, therefore confirming whether you will qualify or not and how much you will qualify for. With a full preapproval, you complete an actual mortgage application, provide preliminary paperwork to confirm your employment and income, and your credit is looked at. This is all done to ensure you qualify and to confirm the amount of mortgage you qualify for. It also means a rate hold can be put in place for you and rate holds have been very important the last couple of years as rates have continually gone up.
So, do you see the difference between the two? One is a conversation and the other is a much more in-depth process. Now if you were buying a couch a conversation might be sufficient, but when you are buying a house, don’t you want to know with as much certainty as possible that when you fall in love with the perfect house, you will qualify to buy it?
This is why getting a full preapproval with someone who takes the time to review your paperwork and credit is the best way to go. To put this another way, getting a full preapproval means:
- There shouldn’t be any surprises because we have reviewed a full application, verified the details up front with paperwork the lender will require, and have looked at your credit
- We can confirm a house shopping budget based on verified information. Too many times in my career a client has told me how much money they make but when I gather the paperwork the lender will need to verify that income, they make less on paper. This means if you went out house shopping without verifying your income with your Broker, you could be shopping out of your actual price range.
- You have done a lot of the work up front. This makes the process simpler and easier when you find that perfect house because then we just have to update the paperwork, not provide it all once.
- A rate hold can be put in place while you house shop to protect you against future rate increases.
These are all reasons I recommend getting a full preapproval before house shopping. This is why I also recommend asking the person helping you what a preapproval means to them, this will ensure you are getting an actual preapproval and not just a prequalification.
Of course, you can also just call me and then you know when I say you are preapproved, that means a confirmed budget, a rate hold if necessary, and that I am confident you will qualify for your mortgage.