Applying for a Loan: What is the Difference Between Prequalified and Preapproved
No matter how much you love your job, making ends meet can be challenging. Maybe you need to finance that new car or pay off some credit card debt. On the other hand, you may be looking to buy a house or pay off your student loans. Whatever the case, applying for a loan is something most of us will do at some point in our lives. Understanding the difference between pre-qualified and pre-approved can make the process easier for all parties involved.
What Is a Pre-qualification?
A pre-qualification is a preliminary evaluation of how much money you could borrow to buy a house. Lenders use pre-qualifications to determine how much they’re willing to lend to a potential homebuyer.
Getting pre-qualified is an excellent way to start the home-buying process. It shows sellers that you’re serious about buying and can help you narrow your search to homes that are realistically within your budget.
It’s important to note that pre-qualifications are no guarantees – they’re just estimates based on your income, debts, and credit score. Still, they’re a good indication of how much you can borrow.
What Is a Pre-approval?
A pre-approval is a letter from a lender that states the amount of money you’re pre-approved to borrow. The letter also states the interest rate and other loan terms available to you.
A pre-approval is more comprehensive than a pre-qualification. With pre-approval, the lender has checked your credit score and verified your income, assets, and employment status. This means you have a good chance of getting approved for the loan when you find the home you want to buy.
Getting a pre-approval letter also puts you in a better negotiating position with sellers. They know you’re a serious buyer ready to purchase a home.
Critical Differences Between Prequalification and Preapproval
When you’re pre-qualified, a lender has looked at your finances and determined that you can afford a loan up to a certain amount. It’s not a commitment from either party, but it’s a good indication that you’re started on the right track.
Preapproval, on the other hand, is much more concrete. It means the lender has approved you for a loan of a certain amount – no ifs, and, or buts. It can take longer to get pre-approved than to be pre-qualified, but it’s the best way to ensure you get the best mortgage rates and terms.
Why Should You Get Pre-qualified or Pre-approved for Your Loan?
You might wonder why you should bother going the extra mile with your loan and getting pre-qualified or pre-approved. The answer is simple: when you are pre-qualified or pre-approved for a loan, it gives you more bargaining power when negotiating the price of whatever you want.
Plus, if you get pre-approved, most sellers will consider your offer more seriously since they know that financing is already in place. This means that it’s much easier to secure the loan you need at the lowest possible rate and terms.
A good rule of thumb regarding pre-qualifying or pre-approving for a loan is to start and plan early. That way, when you’re ready to make an offer on whatever it is that you want, your paperwork will already be in order, and the process won’t hold up the sale.
How to Be Pre-qualified or Pre-approved for a Loan?
There are two ways to go about this: you can go through a lender, or you can go through the government.
Lenders are private companies who will evaluate your credit and income to see if you qualify for a loan. Most lenders offer pre-qualification, which is a preliminary evaluation to see if you are approved for a loan if you applied.
If you’re pre-approved, the lender has already done a full credit check and determined that you will likely be approved for the loan you seek. This usually carries a few conditions, such as agreeing to a mortgage rate or borrowing a certain amount of money.
The government has programs to help people get mortgages: the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA).
FHA loans are available to anyone, regardless of credit score or down payment size. However, VA loans are available only to veterans and their families.
What Financial Requirements Are Needed to Get Pre-qualified or Pre-approved?
When you go to get pre-qualified or pre-approved for a loan, the lender will ask you for a lot of financial information. This includes:
- Your name, address, and Social Security number
- Your income and employment information
- Your debt and asset information
- Your credit score and credit history
The lender will use this information to determine how much money they will be willing to lend you and your interest rate. They may also ask for proof of income and employment, such as recent pay stubs or W-2 forms.
Credit Score Requirements for Loan Qualifications
You’ll need a good credit score if you’re looking to get pre-qualified or pre-approved for a loan. Most lenders will be looking for scores of about 700 with some flexibility depending on other factors such as your income level and debt-to-income ratio.
It’s important to remember that getting pre-qualified or pre-approved does not guarantee that you’ll receive the loan. It just shows that you appear eligible based on the initial criteria. The lender will want to look closely at your reports and other documents to confirm this. Your credit must be in the best shape possible before applying.
Be sure to review the details of any loan terms before signing. Also, compare offers from multiple lenders to ensure you get the best rate possible.
How Long Does It Take to Get Pre-qualified or Pre-approved for a Loan?
The time it takes will vary depending on the lender and the type of loan you are applying for.
Typically, if you are applying for a conventional loan, you can be pre-qualified in as little as 24 hours. However, suppose you are applying for an FHA, VA, or another specialized loan program. In that case, getting your pre-qualification letter can take up to a week or more.
After you have been pre-qualified or pre-approved for your loan, there is typically no wait time before you can begin shopping for a home. In addition, you will also know how much money the lender is willing to lend to you, which is helpful in the shopping process.
That said, the lender will still need to review the sales contract and other documents when it’s time to apply for the loan. Depending on the lender and their policies, this process can take an additional few days up to several weeks.
Get a Loan with Slick Cash Loan Today
Getting the best loan from the best lending company is not a walk in the park. It would be best if you had guidance on the process of accessing the loans, and that’s where Slick Cash Loan comes in.
We don’t just lend you money; we guide you through every step of getting your loan approved. In addition, our website has all the information you need to know about fees and rates so that you can make an informed decision.