By: Wendy Christenson: Vice President & Real Estate and Consumer Lender, NMLS #: 417436

If you’ve purchased a home before, or even thought about purchasing a home, you may have heard the terms “prequalification” or “preapproval.” In both instances, a prequalification or preapproval will give you an idea of whether or not you qualify for a mortgage, and if so, how much you qualify for — a critical first step for most people in the home-buying process. While some may think the words are interchangeable, being prequalified and being preapproved are not the same thing.

What’s the Same?

In general terms, a prequalification or preapproval is a letter your lender provides you that states you qualify for a mortgage loan based on an overview of your financial history, including your income, assets, debts and credit history.

In both cases, a prequalification or preapproval letter can help you estimate the loan amount you likely would qualify for, which can help you search for homes that will fit your budge. There’s nothing worse than falling in love with a home you can’t afford.

What’s Different?

With a prequalification, the financial information you provide to the lender is self-reported. That means you don’t have to provide documentation of your income, assets and debts. A lender may or may not pull a credit report for a prequalification. A prequalification is a quick and easy way to find out if you qualify for a mortgage. While the lender may verbally discuss a potential loan amount with you, this will not be documented in your prequalification letter.

With a preapproval, you must provide documentation of your financial history — including pay stubs, bank statements, salary, assets and credit obligations — so that your lender can verify that the information you’re providing is accurate. The lender also will pull your credit report. Upon completion of the preapproval process, the lender will be able to give you a letter that specifies a loan amount you qualify for.

Since a prequalification is based on information you provide to the lender and is not an in-depth look at your ability to purchase a home, a prequalification letter does not carry the same weight as a buyer who has been preapproved. A prequalification letter really is just confirmation that you qualify for a mortgage based on the information you gave the lender. On the other hand, a preapproval letter is confirmation from the bank that they have verified your financial information and that you qualify for a specific mortgage amount.

Which One is Better?

Having a preapproval letter means that realtors and sellers will take you more seriously and view your offer more favorably because you’re able to demonstrate that you’ll likely be approved for a mortgage and the home will close. Sellers feel most confident accepting offers that are simple and reliable with few contingencies, and a preapproval letter will help your offer stand out.

Having your preapproval in hand before you go house hunting also gives you a huge advantage over other buyers who don’t have a preapproval ready. If you see your perfect house, you’ll be able to write an offer immediately, whereas others will have to go through the preapproval process before they can make an offer. In a competitive housing market, a few hours can make the difference between getting a home and not getting it.

It’s important to understand that neither a prequalification or a preapproval is a guarantee of a loan. If you do put in an offer on a home and apply for a mortgage, the mortgage would still need to go through the loan commitment and full underwriting process.

What is Forte Bank’s Process?

Forte Bank has evolved away from providing customers with prequalification letters and prefers to issue preapproval letters to serious buyers, primarily because real estate agents have said they prefer customers to have preapprovals. Preapprovals carry more weight and are more valuable to all parties involved.

Our preapproval letters are valid for 120 days and there is no fee. We understand that timing can be critical, so we do our best to provide preapproval letters in one business day or less after receiving your financial documents. Most of the time we don’t even need to meet with you to review your financial history. We can speak over the phone or via email and you can provide your financial documents electronically via our secure upload center. We can easily email your preapproval letter, and with your approval, also send a copy to your realtor.

Once your offer is accepted we move you into the formal mortgage application process.

For customers who are still early in the process and not quite ready to shop for a new home in earnest, a prequalification letter is still appropriate and can be a good first step.

Not all financial institutions use the same process, so it’s important to ask your lender specific questions about fees and when they will pull your credit report.

For more information about prequalification or preapproval, contact one of our consumer lenders today!

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