You’ve been doing a lot of thinking and you’ve decided that you’re ready to take the leap and buy a home. One of the first things you will want to do is gather the documentation you will need to apply for a mortgage. If you are in or near Columbia, SC, you can contact Covenant Mortgage Services to find out more about what you will need.

As you navigate through this process, you are going to encounter terms such as prequalification and preapproval. While it’s true that there’s a lot of information relating to the financing portion of purchasing your home, you need to make sure that you understand these two things.

In this article, we’ll explain the difference between prequalification and preapproval so that you can find the financing you need for your dream home.

What is a Mortgage Prequalification?

A prequalification is one of the first steps you can take in the process of obtaining financing for your dream home. This is an estimate of what you may be able to borrow. In order to obtain a mortgage prequalification, you will need to agree to a credit check and provide information about your finances.

It is helpful to have a mortgage prequalification in hand when you are starting your search for your dream home because it allows you to work with the lender to compare your options and find the one that meets your needs and fits within your financial picture.

Advantages & Disadvantages of a Prequalification

If you are just getting started with your home search, you should consider starting with a prequalification. This will give you an idea of the price range you need to be looking in. Here are the advantages and disadvantages of a prequalification.

Advantages

  • Process is quick- can be done over the phone within minutes
  • Don’t need proof of finances
  • Pretty accurate (if you’re honest)

Disadvantages

  • Not an indication of financial security
  • Difficult if you have fluctuating income (self-employed, second job, earn overtime/bonuses)
  • Lender may not do a credit check
  • Not as dependable as preapproval

What is a Mortgage Preapproval?

A preapproval is different than a prequalification. This is an actual mortgage application, complete with lender verification. This is the closest you will get to confirming that you are able to handle a mortgage without actually signing the mortgage contract.

In order to start the process for a preapproval, you must complete the mortgage application and verify the financial information that your lender requests. At this time, the lender will be conducting a credit check.

Once your application goes through and is approved, the lender will send you a letter. It’s important to note that this is not a commitment, but simply a statement that they will lend you up to a certain amount. Typically, the letter is valid for 90 days.

Once you are ready to make an offer on your dream home, you need to obtain a preapproval. This will prove to the seller that you are serious about buying the home and you have the funds to do it.

Advantages & Disadvantages of a Preapproval

If you’re at the point that you have found the home you are looking for and you want to make an offer, a preapproval is your best option. While it’s true that this process is time-consuming and can be tedious, it’s worth it. Here are the advantages and disadvantages associated with a preapproval.

Advantages

  • Gives you confidence to make an offer
  • Approval for mortgage without the contract
  • Makes full approval much easier and faster

Disadvantages

  • Must provide documentation
  • Process takes longer than prequalification

What Information is Required?

Now that you understand what the difference between prequalification and preapproval is, let’s take a look at the information that is typically required for each one.

What Do You Need for Prequalification?

Prequalification is pretty straightforward. You will not need to have as much information for prequalification as you do for a preapproval. Here’s what you will need to bring your lender:

  • Income information
  • Bank account information
  • Credit check (some will, and some won’t)
  • Amount of down payment
  • How much you need

What Do You Need for Preapproval?

One of the major differences between mortgage prequalification and preapproval is the information required. You will need more details about your financial situation for a preapproval. Here is what you will need:

  • 30 days of pay stubs
  • Last 2 bank statements or bank account numbers
  • Credit check (all lenders do at this point)
  • Amount of down payment
  • How much you need
  • Previous 2 years of tax returns
  • W-2 forms

Which One is Best?

Honestly, where you are in your home search determines which one is best. If you are just getting started and you just want to see what’s out there, a prequalification would be best. This will help you narrow down the price ranges to be looking in, helping you in your search.

On the other hand, if you’ve found a home you love and you’re ready to make an offer, you’ll want to get a preapproval. This will give you the confidence you need to make an offer and will prove to the seller that you are serious and have the money to back up your offer.

If you are in Columbia, South Carolina and are looking for your dream home, contact Covenant Mortgage Services. We are not your average mortgage lender. We offer a consultant approach to mortgages. We work with our clients to find the ideal solution for their goals. We believe that the ideal mortgage is not based on what you can afford- but what you can afford and still maintain your desired lifestyle.