It is much better and much more important to get preapproved. Let me start out with the details of a prequalification first. The first thing you are going to do when you start thinking about buying a home is to call a bank or a mortgage broker to see what you can afford and what you can qualify for. If you were to make this call to me, we would start out with an initial conversation about your goals, your knowledge of the financial aspect of homeownership (if any), and your expectations. At this point, I would then ask you some financial profile-related questions, such as:
- What is your gross income?
- What sort of a down payment do you currently have and/or do you expect to receive a gift from family to contribute towards the down payment?
- What are your other minimum payment liabilities (car loans, student loans, credit cards…)?
- Do you know your credit score or are you confident you have good credit?
After answering these questions, I can run some preliminary qualifying numbers to give you an idea of your total monthly payment responsibility and the max you would qualify for. It is important for you to digest this information carefully: what a bank tells you that you may qualify for will not always be what you will be comfortable paying. Only you can determine what you can handle.
This is the prequalification. Essentially, you have verbally given me information, and based on that information, I ran some numbers for you.
A preapproval goes two steps further. These two steps are crucial to your negotiating power in putting offers on homes. I will explain how a preappoval differs from a prequalification in an upcoming post.
