If You Thought Being Prequalified Was Enough, Think Again
Although we live in an ever-changing market where interest rates fluctuate faster than the tides, what has remained steadfast when buying a home, including those using VA loans, is the preapproval letter.
What’s the big deal about a preapproval letter? After all, didn’t you already receive that prequalification letter from your mortgage lender? Sure, but think of the preapproval letter for your VA home loan as Google Street View and the prequalification as a folding paper map. Both take you where you want to go, but while the map shows you how to get to the location, Google Street View offers the added bonus of showing you precisely what you’ll find once you get there. Let’s take a closer look at the differences between the two and the role each one plays as you navigate through the homebuying process.
What Is a Prequalification Letter?
In simple terms, a prequalification letter gives you, your real estate agent, mortgage lender, and anyone else you involve in your home search an estimate of how much you have to spend for a house.
As consumers who live in the age of instant gratification, we like the prequalification process because it’s quick and relatively painless. But as the first step in applying for a VA mortgage, prequalification could lull you into a false sense of security by the fact that it is so fast and easy.
So, what is the process to prequalifying for a home loan? First, lenders may ask you to fill out a form or answer a few questions over the phone to gather information about your homebuying goals, assets, debts, employment, and military service to get a sense of your financial story. At this point, none of the information you provide is verified by the lender; it’s all based on your word. Lenders don’t run a hard credit history check when you apply for a prequalification letter. Some lenders can get you an answer within a few minutes. Others may require a day or so. Note that the information you submit to a lender only goes toward providing an estimate of the amount you can borrow. The lender doesn’t take a magnifying glass to the borrower’s finances and, instead, bases the prequalification status strictly on the information provided. With this information, your lender will estimate a loan amount — not a specific number.
KNOW WHAT YOU NEED TO GET STARTED
Why a Preapproval Carries More Weight Than a Prequalification
How Do I Get a Mortgage Preapproval Letter?
3 Vital Pieces Of Information You Won’t Find In a Prequalification Letter
Although going through the process for a preapproval letter takes extra time and effort, it’s worth it. Unlike a prequalification letter, a typical preapproval will:
- State your exact loan amount
- State the qualified interest rate you’ll pay
- State specifics on your loan fees and other related expenses
The preapproval also lets you know how long it is good for, usually 60 to 90 days. The letter expresses to the buyer that you are approved and ready to buy. Think of that hard-won preapproval letter as a virtual “guarantee” that the lender will approve you for the loan, barring any changes in your financial situation. You now can shop with confidence.
Why Do I Need a Prequalification If I’ll Get a Preapproval?
It makes sense to wonder why you should bother with a prequalification letter when you’re going to turn around and get preapproved. There’s a good reason why you’ll need both. First, real estate agents and sellers want to see potential buyers who are already working with lenders. This first step shows them that you’re a serious buyer who has a relationship with a mortgage lender. Plus, if you’ve given accurate information to your lender, the prequalification letter will provide you with an approximation for how much house you can afford. There’s no need to look at homes that cost $350 thousand if your budget tops out at $250 thousand. As you can see, both the prequalification and the preapproval serve specific purposes to get you on your way toward the homeownership that every active-duty military and veteran deserves.