Buying a home has many stages you must go through. You not only have to find a property you want to buy but also you have to secure financing and come to an agreement with the seller.
Financing is something that holds up many purchases because you may not secure a loan or you may try to buy a home that is too expensive for your financial situation. One way to avoid these slowdowns is that you can prequalify for a mortgage.
According to Bank of America, prequalification is the first step you take when you consider buying a home. It allows you to learn about the different financing options available to you and gives you an idea of how much you can borrow.
You will provide some financial information to the lender. The lender will do a credit check, but it will not do extensive investigations of your finances at this time.
Preapproval and prequalification
Prequalification differs from a preapproval. Preapproval determines your creditworthiness. During a preapproval, the lender will do a deep investigation of your finances to determine if you can afford the loan you want.
The biggest difference is that preapproval ends with an offer to lend you a specific amount of money. A prequalification only ends with an estimate of how much you can spend.
Prequalification is helpful before you begin to house shop. It gives you an idea of what properties are in your price range. However, once you decide to make an offer, you should do the preapproval as this shows sellers you are a serious buyer who can actually secure the loan to buy.