What is the difference between prequalifying and getting preapproval for a loan?
To prequalify for a loan, you give a lender some basic financial information and in return they tell you a rough estimate of the type of loan you should consider and how much you would qualify for in that program. This is generally a very informal process, as the data you provide will not be verified. A prequalification is only a preliminary determination of your eligibility for a loan and as a consequence, there is no commitment by the lender to actually fund the loan.
Is a preapproval worth it?
Since neither a preapproval nor a prequalification guarantees that the lender will give you a loan, you may wonder why you should go through the hassle. One reason to get a preapproval is so that you can shop for a house with a better understanding of how much you can afford. Another reason is that it may give you an edge in a competitive housing market. If there are multiple bids for a home, having a preapproval for a loan will give the seller more confidence that you can indeed get the necessary financing, increasing their confidence in the transaction and ultimately making your offer more attractive.
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