Preapproval vs prequalification

by Jennifer Duvall, Asheville Savings Bank
(Asheville, NC )

Many times, customers call and would like to get prequalified for a loan. My first question is always, "Do you want a preapproval or a prequalification?" People always ask what the difference is.

A prequalification is simply a person telling you that they make "X" amount per month and their debt is "X" amount per month. We do not verify anything, pull credit, nothing. It's a simple conversation. This is fine when they are certain they have excellent credit, are not self employed, and have money to put down.

Nine times out of 10, I do suggest a "true" preapproval. We do complete an application, pull credit, verify income and assets - it's basically the entire mortgage process minus locking in the rate and property appraisal.

The preapproval allows both the buyer and the realtor to have confidence that the transaction will be a smoother process for everyone involved. Other than the home inspections and appraisal, all other areas of concern are already covered.

I am happy to do whatever a client prefers, but thought this information might help with clarification of what is best for a specific buyer before they start looking for their new home.