Preapproved or Prequalified:  What's the Difference?

Confusing prequalification with preapproval can mean disappointment for both a home seller and a buyer. Real estate experts say it's smart to urge buyers to become preapproved by their lender – not just prequalified.

 

For a buyer to obtain a bona fide preapproval, he must submit a loan application with the necessary documentation and fee. After the lender verifies and analyzes the application, it will notify the applicant of how much money he can afford to borrow. Armed with that information, the buyer can confidently go home shopping.

 

Prequalification's are simply an estimate of what a buyer can afford. A buyer who assumes that this estimate is accurate and chooses a home based on the information may, in fact, be denied a loan when he actually applies, a situation that wastes his time and can put a seller in an a bad position if they've already turned away a qualified buyer. And, of course it wastes the real estate practitioner's time as well.

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What Lenders Need From Buyers

Having the necessary information ready for the lender will make the mortgage application process go faster.

 

GENERAL:

Social Security numbers

Divorce papers

Green cards for resident aliens

Employment verifications

Two most recent paycheck stubs

Tax returns for the last two years

Three most recent bank statements

 

ASSETS:

Saving accounts (balances, account numbers, and institutions)

Credit union (balances, account numbers, and institutions)

Mutual funds (balances, account numbers, and institutions)

IRAs or 401(k)s (balances, account numbers, and institutions)

Equity in current home

Cash flows from rental properties

Pensions or annuities

Alimony

Life insurance—the face amount and cash value

 

*SELF-EMPLOYED: 

If self-employed, you'll be subject to extra scrutiny. You will need to provide balance sheets and company tax returns.

 

*ENGAGED BUYERS: 

There is an FHA Bridal Registry Account, which allow family and friends to make cash wedding gifts toward the purchase of a house.

 

DEBTS:

Mortgage and home equity loans

Monthly bills

Credit card balances

Student loans

*Car loans

Alimony and child support payments

 

*If you have a car loan with only a few payments remaining, lenders may not count the balance toward your outstanding debt.