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

The term’s abstract of title definition is the recorded summary of a property’s history. Abstracts of title can be used to determine former and present ownerships of any ...

Obligation taken on by a person who did not obtain it originally, but agrees to honor the terms of the existing obligation as a condition for the transaction. By assuming the loan rather ...

If you are involved with real estate, chances are you've come across the term "convey" or conveyance. But what does convey mean in real estate? This term is crucial whether you're buying, ...

Rent that a comparable property would mandate in a given real estate rental market. Market rent is a competitive rate based on rents other comparable properties receive. For example, in a ...

unfinished access space below the first floor having less height than a full story. An individual must crawl through the crawl hole to gain access. Any interior passage of limited ...

Thin layer or slate of baked clay, linoleum, or some other material that is used for covering floors, roofs, or as an ornament in a building. ...

Before getting a loan to buy a property, you must know the definition of foreclosure. A foreclosure is the process of making a loan due immediately. Technically, a loan becomes due way ...

The total expenditures required to make a locality suitable for the designated purpose. An example is how much it would cost to build a shopping center on a lot. ...

Area that is located between a rural and urban area. ...