Prequalifed or preapproved
Thursday, November 9th, 2006
Once you’ve found the lender whose terms are most appropriate for you, you’re all set to go ahed looking for a home. It makes sense to take another step - getting yourself prequalified for a loan, or preapproved.
Prequalification is in some ways similar to the eligibility check for how much you can get - you give the details of your income and finances to the bank, like a dry run of the loan process. The bank gives you an estimate; however, because you don’t provide proof of income, this is not a binding or firm offer.
Preapproval takes this further; you submit all documents related to income and credit, the bank verifies these and your credit rating, and approves you for a loan. This approval is usually valid for a definite period (60 - 90 days is the norm) and can be extended as required.
Why does this make sense? Sellers have often been burnt by potential buyers who fall in love with the property, but subsequently don’t qualify for a suitable loan. At that point, the deal falls apart, and the seller has to start all over again. As a result, sellers prefer buyers who have preapproval ; the sale process is faster, and sure, and they may be willing to negotiate a better price to close the deal.
In addition, pre-approval gives you a clear picture of where you stand, and what you can afford, rather than depending on vague estimates that might not pan out.
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