When purchasing real estate, most people and investors require financing through a traditional lender. As you research your options, you may see two different terms: preapproval and prequalification. While some lenders may use both terms interchangeably, they typically have two different meanings.
To be preapproved or prequalified means that the lender did an initial assessment of your creditworthiness. However, you will typically seek preapproval from the lender you are more serious about.
Prequalification process for a loan
The prequalification process is instant, in most cases. Generally, the lender only views your basic information, like income and credit. In some cases, you will submit an online application and see your results immediately. You do not have guaranteed approval with prequalification, but it can help you to weigh out your options. When you receive prequalification, you can put that lender on a list of those you may seek approval from.
Preapproval process for a loan
For preapproval, lenders take into consideration your income, tax returns, bank statements and credit score beforehand. Often, this is your first step in the mortgage process. You will probably seek preapproval before you secure a loan from a mortgage lender. While preapproval, like prequalification, does not guarantee anything, it is a lot more accurate than prequalification. Generally, the review for preapproval takes a few days.
When shopping for rates on a property loan, most credit scoring models will combine your inquiries into one if you make them within 14 days of each other. This means you can shop for a lender without worrying about several hard inquiries to your credit.