Basically a process in applying for loans, this is non-binding and is where mortgagors would provide to lenders information required such as details about assets, credit, debts, and income. The lenders, afterwards, will calculate the amount that they would most possibly approve.
After the estimations are made, the lenders may then issue a prequalification letter with the home purchase limit showing on it. This can help home purchasers and real estate agents to only focus on properties that are within the proposed budget.
Prequalification is actually how the buying process starts. However, since a loan application from a borrower is absent, the information provided lacks validation, and the credit report is not produced, the property value would turn out to be somewhat restricted.
On the other hand, for home buyers to be approved for the sale, they do not choose to be just prequalified. They also want to be pre-approved for the loans they have applied for. Because this lessens the chances of problems such as unidentified credit issues to surface. If there is any, the acquisition could possibly be stopped.
Furthermore, pre-approval is also highly preferred by real estate agents and homeowners who are selling their property. Since they know the approved home buyer is serious and capable of settling the negotiations. As a matter of fact, a pre-approved purchaser is as good as a cash buyer.