Today and tomorrow we are going to look at two common terms in the home loan business: prequalification and preapproval. They may sound like practically the same thing, but they’re not. Today we’ll start with prequalification, and tomorrow we’ll look at preapproval.

Prequalification: a "guesstimate"

When looking for a home mortgage, it is important to get an idea of what you can afford. After all, it is a waste of time to look at homes that are out of your league. Prequalification can help you get a better idea of what you can afford in terms of a home loan. Prequalification works this way:

• You sit down with a home mortgage lender
• You tell the him/her about your financial and credit situation
• The home loan officer gives you an estimate of how much you can borrow, and the likely interest rate

This can be quite helpful before you go home shopping because you will get a general idea of what you can afford, and the interest rate you are likely to get. And there won’t be an inquiry into your credit, which is also good. However, it is important to note that prequalification is not a guaranty of what you will be approved for. A prequalification is based upon what you tell the home loan officer, so if you are wrong, you may not get the interest rate or the amount that was discussed.

Prequalification is best if you are initially home shopping, and looking for the home mortgage lender that offers the best rates. With prequalification, you can keep your credit score intact as you search for the best mortgage lender.

Tomorrow’s subject is related, but different: preapproval.

Tags: home loan, home mortgage, mortgage lender, prequalification,
prequalification home loan, preapproval, home shopping