Preapproved Vs. Prequalified: Which Is Better?

When you prepare to apply for a mortgage, you will come across financing terms like “prequalification” and “preapproval.” It’s important to understand the meaning of these terms, as this will guide your home search by allowing you to understand your buying power and show the seller that you’re a serious and qualified buyer.

At the fundamental level, preapproval and prequalification are types of mortgage approvals, and they refer to the steps a lender has taken to verify that a borrower can afford a mortgage. Here are a couple of points to keep in mind:

1. Many lenders use prequalification and preapproval interchangeably. Every lender handles mortgage approvals differently and the steps involved change from lender to lender.

2. No matter matter the type of mortgage you apply for, it’s not a guarantee that you’ll close the loan.

We’ll also explain how our preferred lender handles approvals, so you can know what to expect when you apply for a mortgage.

WHAT IS MORTGAGE PREQUALIFICATION?

A prequalification generally means that the lender collects some basic financial information from you to estimate how much house you can afford.

A prequalification is a ballpark estimate and is less reliable than a preapproval, which usually involves your lender checking your credit score and reviewing bank statements along with other financial documents.

As you begin searching for a home, realtors and sellers want to see you’ve been working with a mortgage lender so they know you can afford to buy a home. You’ll need a qualified real estate agent that can negotiate the best price and terms for you along with a solid preapproval letter.

VERIFIED APPROVAL

After you’ve been approved, you can level up to a verified approval by providing some documentation so your lender can verify your income and assets.

Verifying your income and assets along with your credit history is a more accurate estimate of what you can afford. It also carries more weight with a real estate agent and the seller, because they’ll know we verified that you can afford the home you wish to buy. You can provide your approval letter to your real estate agent and the sellers as proof that you can obtain a large enough mortgage to purchase the home.

SUMMARY

Getting approved early in your home search is a great way to know what you can afford, so you can narrow in on your dream house. To get started, apply for a mortgage and get premium pricing on your interest rate.

What Is A 15 Year Fixed Rate Mortgage?

A conventional 15-year fixed rate mortgage is similar to a 30-year fixed rate mortgage in many respects. A conforming 15-year fixed rate loan features a limit of $484,350 ($726,525 in high-cost areas) and a consistent rate throughout its lifetime, giving you secure and predictable monthly mortgage payments. So what does this loan offer that a 30-year fixed rate loan doesn’t?

View Today's 15-Year Fixed Mortgage Rates

The main difference is the length. With a 15-year mortgage, you’ll pay off your mortgage in half the time, putting you on the fast track to full amortization. A 15-year fixed rate mortgage also features lower rates than its 30-year counterpart. A shorter loan term plus lower mortgage rates means less interest on your loan and more money in your bank account! Conventional 15-year fixed rate mortgage features include:

• 3-5% minimum down payment options for qualified homebuyers.

• Regular, qualified income required.

• No private mortgage insurance (PMI) with 20% or more down.

• Seller assistance with up to 3% of closing costs.

• Loan options up to $5 million for non-conforming mortgages.

• Home Style renovation loans with options as little as 5% down.

• 203k renovation loans with a minimum 620 FICO score.

Is a 15-year fixed rate mortgage right for you?

A 15-year fixed rate mortgage is popular with two different demographics. Younger homebuyers with sufficient income often use it to pay off their home before their children start college, while older homebuyers with established careers and higher income use it to pay off their mortgages before retiring. A word to the wise: 15-year fixed rate mortgages feature higher monthly payments than a 30-year loan. You’ll need to factor that into your budget when deciding whether this loan fits your needs.