Getting Prequalified and Preapproved for a Mortgage: Know the Difference

In an earlier blog, we discussed some key provisions that prospective homeowners need to get in place before purchasing a home. One of the later steps included getting prequalified for a loan — but what does that really mean? Most people use prequalified and preapproved interchangeably, and while they may have similar benefits, their differences should be noted, too. 

Before you can buy your dream home for sale in Northern Liberties in Philadelphia, or any home for that matter, you need to know how much you can afford to spend — and the prequalification and preapproval process will help you do just that.

What Prequalified Means

During a prequalification process, you may have to provide basic financial information to a lender, such as your annual income and financial assets. You won’t have to worry about prequalification affecting your credit, as this process typically will not require them to check your credit profile. Providing this information to a lender will allow them to estimate the loan amount you may qualify for. It’s important to note that being prequalified does not always lead to approval and should be used as a guideline for determining which homes you can look for in your budget. 

What Preapproval Means

Getting preapproved for a mortgage is a more comprehensive evaluation of your financial situation. This process will require a lender to check your credit report, financial assets, W-2 forms, and paystubs. This thorough assessment of your financial standing will help a lender determine whether or not you qualify for a loan, and at what amount and interest rate. Once you’ve been preapproved for a loan, a lender will let you know how much you are preapproved for, at which point you can begin shopping for a home that fits in your budget. It’s important to note that your loan application can be denied if your credit report or financial status changes. 

Why Is This Important?

Getting prequalified and preapproved is a great way to gauge your financial situation and gives you an idea of what type of home you can buy. Take a look at the infographic below to see why you should get prequalified and preapproved for a mortgage loan:

If you’re interested in shopping for luxury townhomes in Old City, give our team a call so that we can help you procure a property that fits in your budget. The McCann Team can show you a range of homes for sale in various up and coming Philadelphia neighborhoods. Get in touch with an agent to learn more! 

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