Whats the difference between a prequalification letter and a preapproval letter?
Prequalification and preapproval both refer to a letter from a lender that specifies how much the lender is willing to lend to you, up to a certain amount and based on certain assumptions. These letters provide useful information, but are not guaranteed loan offers.
Theres not a lot of difference between a prequalification letter and a preapproval letter. While there are some legal distinctions, in practice both terms refer to a letter from a lender that says the lender is generally willing to lend to you, up to a certain amount and based on certain assumptions. This letter helps you to make an offer on a home, because it gives the seller confidence that you will be able to get financing to buy the home. It is not a guaranteed loan offer.
Dont worry about which word lenders use. Some lenders may use the word prequalification, while other lenders may call the letter a preapproval. In reality, lenders processes vary widely, and the words they use dont tell you much about a particular lenders process. The important thing is that the letter you receive provides enough information for sellers in your area to take it seriously. The best way to make sure that the letter you have will serve its purpose is to ask a local real estate agent.
Lenders usually check your credit when issuing a prequalification or preapproval letter. Many people wait to get a preapproval letter until they are ready to begin shopping seriously for a home. However, getting preapproved earlier in the process can be a good way to spot potential issues with your credit in time to correct them.