What Is The Difference Between Being Prequalified And Preapproved For A Loan?

Definition of "What is the difference between being prequalified and preapproved for a loan?"

Are you wondering what is the difference between being prequalified and preapproved for a loan? Do you always get confused because they seem pretty much the same thing, right? But there is actually a fundamental difference between both.

And it is pretty simple to explain it:

When you receive a letter saying you're prequalified for a loan, it means that you POTENTIALLY could get a loan for the amount stated in the letter - assuming that all of the information they have on you (whether given directly by you or by credit report agencies) was accurate and true.

Now, when you're pre-approved, it means that you have already undergone the extensive financial background check - which includes looking at your credit report, previous tax returns and verifying your employment - and the lender is willing to give you a loan. You're APPROVED! So, they give you a letter that states such and it is usually valid for 60 days thereafter. Notwithstanding the above, you will have an accurate figure which shows the maximum amount that you are approved for.

Can you see what is the difference between being prequalified and preapproved for a loan now?

Preapproved is a done deal for a determined value should you decide to go further, while prequalified is an invitation to see how much under that specified value can you get once all your financial information is checked and your credit risk is assessed. Because of that, most home sellers prefer home buyers that have been preapproved because they know that there will not be any problems with the purchase of their home.

Some real estate agents will even tell you to first get preapproved before going out shopping because the amount you will be able to get will define the ballpark at which you will be able to play in.

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Real Estate Questions

Popular Real Estate Glossary Terms

Standard precut lumber sizes for lumber industry needs. The typical sizes are 2 to 5 inches thick by 5 to 12 inches wide. ...

A mortgage requiring a substantial down payment. It is usually only available to those having good credit, and has fixed monthly payments for the life of the loan. It usually has a 30 year ...

(1) The exposed trim and molding surrounding a door or window. (2) Woodwork which encases a pipe or structural member. (3) Method of creating a form for the pouring of concrete. ...

An open surface constructed on top of a flat roof. Normally, a railing is constructed on the sides of a deck roof. See also deck. ...

Received immediately when an investment is made or contract signed. For example, a real estate limited partnership may require that an investor pay a 3% sale fee at the time of initial ...

The income earned on an investment, typically stated as a percentage of the market price ...

Same as term government rectangular survey: Way in which the U.S. government uses to subdivide public land. Land is designated as either a base line (East-West) or principal meridian line ...

Physical decline in a property's value caused from use, old age, and environmental factors. ...

Sometimes, a perplexing legal term (a genuine headscratcher) emerges when buying or selling a property. You know you should know it, but its precise definition escapes you. Today's special ...