When you are ready to start the home buying process, it helps to get pre-approval on your home mortgage loan. Pre-approval is helpful because it gives you a good idea of the amount of money you can spend on a home, and the price range you can look in. It eliminates some homes immediately, and help you obtain much needed grounding as to what you can actually afford. However, many people experience confusion as to the difference between pre-approval and prequalification. While prequalification can help, it is by no means as certain as obtaining pre-approval for a mortgage loan amount.
What is prequalification?
Prequalification has its benefits. It too gives you an idea of how much house you can afford. Additionally, you can become prequalified without having the lender check your credit report. However, prequalification does not mean approval. You may decide on a house, only to find during the approval process that you cannot get approved for that home loan amount after all. Because your prequalification is often based on information you give the lender, and not an actual credit check, the qualification is merely a reflection of what you may qualify for, if everything is as you represent. Prequalification can be a good idea if you are shopping around, looking for the best interest rates. This way you can get an idea of what different lenders offer, without actually having to authorize an inquiry into your credit.
The stronger option of pre-approval
With pre-approval, you are actually approved for a home mortgage loan. You should receive documentation that you can show to home owners and realtors, confirming that you do have the funds available for the home. However, when a lender pre-approves you for a home loan, he or she will run a credit check. If you have a lot of these types of inquiries, then it can actually damage your credit score. So, if you are just looking for the best lender to work with, hold off on pre-approval until you actually make a decision on who you will go through for your home financing.