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What’s the Difference Between Prequalified For A Mortgage vs Preapproved?

July 27, 2020 | By Reef Merhi

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To be prequalified for a mortgage, your lender will ask you a few questions about your income, assets, and down payment. Your lender may also ask you about your credit card debt to get a clear understanding of your financial situation.

The pre-qualification process varies by lender, and you may be able to get prequalified for a mortgage over the phone. Your lender will likely run a credit check before presenting you with the estimated amount you’ll be able to borrow.

It’s important to understand that pre-qualification is an informal process. Being prequalified for a certain loan amount does not mean you are approved to borrow the amount.

Pre-qualification is an excellent tool you can leverage when you start looking for homes in Houston.

If you’re a first-time homebuyer, you can go through the pre-qualification process to determine approximately how much you’ll be able to borrow.

Pre-qualification is optional and informal. Preapproval is formal and highly recommended for first-time buyers shopping in a competitive market.

What You Will Need To Get Prequalified For A Mortgage

When you begin the preapproval process, there are a few things your lender will want to verify. Be prepared to provide proof of the following items.

  • Financial stability
  • Income and employment
  • Debt
  • Assets

Your lender will ask to see your W-2 statements, recent pay stubs, a breakdown of your monthly expenses, and information about any real estate you own.

Getting preapproved for a loan allows you to move forward more easily with the purchasing process.

Getting preapproved doesn’t mean you’re officially approved for a loan, but you’ll get a preapproval document from your lender that you can show to sellers and agents.

Getting a letter of preapproval positions you as a serious, qualified home-buyer and makes it easier to shop.

While pre-qualification and preapproval can help you determine your budget, securing a letter of preapproval will put you on the fast track to becoming a homeowner.

Want to Get Preapproved? Follow These Steps

1. Know Your Credit Score

In order to get preapproved, you’ll need a FICO score of at least 620. A score of 740 or higher will allow you to get the lowest interest rates.

Be sure to get a copy of your credit report, clear up any errors, and completely resolve any issues before applying for preapproval.

2. Lower Your Debt-to-Income Ratio

If you have a lot of debt and little income, your chances of being preapproved are slim.

Calculate your current ratio and get it below 36% before trying to get preapproved.

3. Gather Financial Documents

Your lender is going to ask to see quite a few documents. It’s best to have these documents on hand and ready to go. Being prepared shows lenders you are responsible and serious.

To get preapproved, you’ll need these documents.

  • W-2s
  • Social Security number
  • Proof of address
  • Employment information
  • Proof of additional income
  • Proof of assets
  • Bank account information
  • Pay stubs
  • Other documents may be requested depending on your lender.

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