When purchasing a new property, there are many things you’ll need to learn in order to ensure a smooth and effective process that gets you into the home of your dreams.
By understanding the differences between home prequalification and preapproval, you can improve your knowledge of the application process and what it means for your home ownership goals. You can also learn how to make informed decisions and choose the right application pathway to suit your needs.
What are the key differences between prequalification and preapproval, and which option should you pursue? Here is everything you need to know.
What is home loan prequalification?
Home loan prequalification is a quick and easy process that provides you with a general estimate of your total borrowing power, allowing you to budget effectively and choose a property you can afford.
Usually obtained via a phone call or virtual application, prequalification isn’t set in stone. It won’t appear on your credit report and doesn’t represent a commitment to buy. Your home loan prequalification is designed to help you understand your spending capacity and plan accordingly, even if you aren’t quite ready to make an offer on a property.
What is home loan preapproval?
Preapproval, also referred to as conditional approval, is a much more in-depth assessment from a lender, telling you exactly how much you can expect to borrow based on your current financial situation. It can also include the interest rate you will be offered.
Home loan preapproval is designed for buyers who are serious about purchasing property. The assessment includes a far more detailed process, and the result will appear on your credit report. While preapproval doesn’t guarantee you’ll get the loan you need, it does offer a realistic sense of what you can afford and can make it quicker and easier to secure a loan when you need it.
What are the key differences?
While home loan prequalification provides a precursory look at your borrowing power and loan expectations, preapproval gives you an accurate estimate and can even fast-track a future loan application.
Prequalification is general, whereas preapproval. Is more definitive, including information about loan funds and interest rates. While prequalification relies on only basic financial information, preapproval includes a full assessment of your finances, including a credit check.
Generally, it is possible to secure prequalification quickly, often within the same day or even within a few minutes if you’re using a digital system. Preapproval requires the completion of a mortgage application, which can take longer to review.
Which option is right for you?
How soon do you plan to buy a new home, and how accurate do you need your loan estimate to be?
Your answers to these questions will help you determine where prequalification or preapproval is right for you.
If you plan to wait a while before purchasing property, prequalification may be the right choice, while you may be better off choosing preapproval if you plan to buy within the next three months.
Similarly, if you need only a general overview of what you can afford, a prequalification could be enough, while more accurate requirements may warrant full preapproval.
Could you use some help navigating your home loan application and approval process? Talk to Our Top 10, the best mortgage broker Sydney has to offer.