Preapproval vs. Prequalification

So, what's the difference between a "Prequalification" and "Preapproval".  They are not the same thing.

The Preapproval is when the lender FULLY underwrites your file.  That means, they check your credit, dig through your bank statements, paystubs, and tax returns, and verifies your employment with your employer; among other things.  They are basically fully approving you for a monthly payment, so that when you find a property with a monthly payment under that approved amount, then you are approved, no questions asked.  All you need after that is the signed contract and the appraisal (and the inspection, as I always suggest).

With a prequalification, it depends on the Lender performing it.  I go pretty in depth to make sure there are no questions, but other lenders may not.  The lender should be checking your credit, looking at your income to make sure you can afford the mortgage, and looking at your assets (bank statements, etc.) to verify that you have enough money for the down payment and closing costs.  The Prequalification is nothing "firm" or written in stone.  It is a letter that states that to the best of their knowledge, you are qualified.  No one is calling your employer to verify that you are employed there.

As you can see, the Preapproval is a lot more in depth of a qualification than the Prequalification.  Anybody can give a prequalification, but the preapproval is the real approval.  If you trust your mortgage lender, the prequalification is good enough to begin searching for homes though, but if you have complicated finances, like taxes, or you own your own business, definitely go with the Preapproval approach.

If you already bought your home, which way did you go?  What way would you suggest?

Keith Turner
KeithT@mccuemortgage.com
860-444-0650