June 20, 2019
Getting a mortgage loan is harder than it used to be, and homebuyers are looking for the best way to get a mortgage preapproval. Unfortunately, just because you are prequalified, it doesn’t mean you will actually get a mortgage. You will need to be preapproved to get the green light from a lender. Although the terms sound much the same, they mean very different things, so what is the difference between prequalification and preapproval?
Prequalification: A Quick Analysis
The purpose of prequalification is for a lender to analyze whether you have enough assets to purchase a house. This is determined with verbal information you provide about your income, debt, and savings. Prequalification also helps determine the amount of money you are able to borrow before applying for a mortgage loan.
Preapproval: Direct Steps towards a Mortgage
Loan preapprovals involve more work from both the homebuyer and the lender than prequalification. Preapprovals are made when a lender takes an in-depth review of your credit history to determine a specific mortgage amount for which you are eligible. It confirms that a lender is willing to loan you a particulate amount to purchase a home, and it reassures the seller that you are committed and able to afford the monthly payments. This part of the mortgage approval process also brings up any issues with credit, so you can begin improving it to speed up the loan process. Your debt-to-income ratio typically determines your loan preapproval amount. Additional benefits of preapprovals include a clear outline of your price range; direct focus on the home’s features, benefits and price; increased negotiating power with the seller; and a sped up close on the property.
What to Choose?
The preapproval process requires more from the potential homebuyers but also supplies them with a better likelihood of a mortgage qualification. Preapprovals require a mortgage application, an application fee (in some cases), a credit history check, an estimate of a down payment amount, and it is based on a review of your finances. The lender then provides a specific loan amount to the customer as well as interest rate information. Which option is better? It is highly recommended to skip the prequalification process altogether as the information shared between both parties is not enough to secure a mortgage approval.
After getting preapproved, it is important to continue paying bills on time and saving, and to avoid making big purchases, incurring new debt, changing your job, or incurring any new credit inquiries. Maintaining your credit score or keeping it on the path to perfection will keep you on the right track.
Use LUSO Federal Credit Union for Mortgage Preapproval
LUSO Federal Credit Union is a not-for-profit, member-owned financial cooperative dedicated to providing members with quality financial services and products. We at LUSO pride ourselves on serving the financial needs of our members and helping them manage their finances, such as credit card debt. Our services and rates, which also include home equity loans, mortgage loans, and refinancing solutions, are available in Western Massachusetts. Contact our Ludlow branch at 1-(844) LUSO-FCU for inquiries about residential mortgages or call our Wilbraham branch at 1-(800) 808-5876 to learn more.