Know the Difference Between Being Prequalified and Preapproved for a Loan
Regardless of whether you’re buying a primary residence or an investment property, chances are that you’ll need to borrow at least some of the purchase price in order to get the deal done. With today’s low interest rates, this “cheap” money can help to keep your monthly payments down.
But how do you determine the amount you can borrow from a bank or lender?
One way is to either get preapproved or prequalified. But even though these two terms might sound familiar, they are not the same thing – and one can be far more beneficial when the time comes to make an offer on a property.
For instance, prequalifying will give you a ballpark idea of approximately how much you can borrow. With this process, you provide the lender with some basic information, such as the amount of your income and debts.
However, in the prequalifying stage, the lender won’t delve deeply into your financial history. Therefore, prequalification can oftentimes be done quickly and easily by answering just a few questions online or over the phone.
On the other hand, if you get preapproved, you’ll actually have a conditional commitment from the bank or lender to grant you the mortgage. In this case, you will typically have to provide the bank or lender with more in-depth details regarding your overall financial picture, including:
- Prior years’ tax returns
- Debt / loan balances
- Credit score / credit report
- Background check
This step is much more involved and will require you to complete an official mortgage application. Once complete, the lender will usually provide a preapproval up to a set dollar amount. You may also be able to lock in an interest rate.
Many lenders will also provide potential borrowers with a preapproval letter. This can give you an advantage when the time comes to make an offer on a property – especially if you’re competing with others who have not been preapproved.
When you purchase a rental property (or add to an already existing investment real estate portfolio), having an experienced property management team on board can help you to streamline the process of finding and screening tenants, collecting rent, responding to emergencies, and maintaining the property. So, if you own (or soon will own) residential rental property in Central Florida, give us a call and we’ll provide you with more details on how we can make your life easier.