Unlike prequalification, preapproval is a more specific estimate of what you could borrow from your lender and requires documents such as your W2, recent pay stubs, bank statements and tax returns. The lender will then use these documents to determine exactly how much you can be preapproved to borrow.
Prequalification tends to refer to less rigorous assessments, while a preapproval can require you share more personal and financial information with a creditor. As a result, an offer based on a prequalification may be less accurate or certain than an offer based on a preapproval.
Being pre-qualified means a lender has decided you will likely be approved for a loan up to a certain amount, based on your current financial situation.
There's not a lot of difference between a prequalification letter and a preapproval letter. While there are some legal distinctions, in practice both terms refer to a letter from a lender that says the lender is generally willing to lend to you, up to a certain amount and based on certain assumptions.
You can certainly be denied for a mortgage loan after being pre-approved for it. ... The pre-approval process goes deeper. This is when the lender actually pulls your credit score, verifies your income, etc. But neither of these things guarantees you will get the loan.
Inquiries for pre-approved offers do not affect your credit score unless you follow through and apply for the credit. ... The pre-approval means that the lender has identified you as a good prospect based on information in your credit report, but it is not a guarantee that you'll get the credit.
Prequalification is typically considered a soft inquiry, and it won't hurt your credit all on its own. In fact, it can be a helpful tool for lowering your risk of being rejected for a new credit card.
Once you have your preapproval letter, you may be wondering how long it lasts. Your income, credit history, interest rate — think about all the different ways your finances can change after you get your letter. For this reason, a mortgage preapproval typically lasts for 60 to 90 days.
The short answer is yes, you could certainly offer more on a house than what you've been pre-approved for. But you'll probably have to pay the difference between the loan amount and the purchase price out of your own pocket. ... The house costs more than their mortgage pre-approval amount.
Making an Offer Without Pre-Approval
You can make an offer even if you've never spoken to a mortgage lender. Not being pre-approved might not even hamper your offer if the seller has not received other competing offers. ... Your offer is only valid if you actually get approval for a mortgage loan.
A preapproval letter just says that a lender is willing to lend to you – pending further confirmation of details. A preapproval helps you shop for a home, because it lets the seller know you are a serious buyer.
Attaching a letter of pre-approval stating that you are well approved up to $650,000 may show sellers that you're willing to go above and beyond in order to get the home. ... Side Note: When trying to buy a house LOWER than the asking price, a tailored letter can also be a benefit.
To be clear, though, getting a preapproval letter before looking at homes was always recommended — it increases your chances of an offer being accepted and helps streamline the mortgage process. But now that it's required, you'll want to take the time to do it, even if it adds one more step to the process.
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