Being prepared is critical in the homebuying process. More often than not, sellers and their agents like to see that their buyer can secure the financing needed to purchase the home in question. That’s where preapproval vs. prequalification comes into play. But what’s the difference between the two? We spoke with a couple of experts, Kevin Leibowitz of Grayton Mortgage and Robert Niyazov of R&J Capital Group, to learn more.
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Hell’s Kitchen
444 West 54th Street
$490,000
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1
Hell’s Kitchen
315 West 55th Street
$390,000
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Lincoln Square
170 West End Avenue
$585,000
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Upper West Side
146 West 82nd Street
$599,000
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2
Turtle Bay
251 East 51st Street
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Lenox Hill
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Midtown South
220 Madison Avenue
$540,000
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Turtle Bay
210 East 47th Street
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Lincoln Square
74 West 68th Street
$520,000
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Lenox Hill
215 East 73rd Street
$550,000
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Midtown
150 West 51st Street
$550,000
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1
Turtle Bay
142 East 49th Street
$350,000
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1
What Is Mortgage Prequalification?
Mortgage prequalification is an informal recommendation a mortgage professional creates for prospective buyers regarding their ability to secure financing for a home. As Leibowitz explains it, the information is all provided verbally in a conversation with the mortgage broker. The broker will then take all the borrower’s financial information to see if they could qualify for a loan without using any automated software or looking at bank statements.
Potential buyers might choose to pursue a prequalification vs. preapproval when they’re kickstarting their search to see what kinds of mortgages they could potentially secure. Leibowitz says it is a good way to estimate what you could comfortably afford.
However, it is essential to note that not all mortgage brokerages provide prequalifications. Niyazov says he rarely completes them since sellers expect buyers to have formal preapproval, not just a prequalification, especially in a competitive housing market. “It is important not to waste time if you are seriously looking to buy. Going through the actual preapproval process shows you are a serious homebuyer.”
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Gravesend
2504 East 1st Street
$589,900
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Kensington
379 Ocean Parkway
$599,000
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1
Sunset Park
531 41st Street
$350,000
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Kensington
379 Ocean Parkway
$399,000
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Bay Ridge
361 86th Street
$599,999
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1
Flatbush
260 Linden Boulevard
$529,000
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1
Manhattan Beach
179 West End Avenue
$565,000
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Sunset Park
873 42nd Street
$598,000
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1
Clinton Hill
355 Clinton Avenue
$475,000
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Coney Island
601 Surf Avenue
$595,000
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Fort Hamilton
9201 Shore Road
$379,000
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What Does Preapproval Mean for Homebuyers?
Mortgage preapproval is a formal process in which mortgage brokers determine if prospective borrowers can qualify for a mortgage of a specific value. The process involves more paperwork than prequalification because brokers have to look at tax returns, pay stubs, bank statements, and an official credit report. However, at the end of the process, the homebuyer will have an official preapproval letter to provide with their offer.
In addition to financial information, the broker will ask for details on the buyers’ prospective property or similar properties. Leibowitz prefers buyers to show a specific property, even if it’s off the market, so he has more numbers to crunch. However, providing a price range is also acceptable, Niyazov says.
“We take the credit report, we look at the information as it’s presented to us, and we build a little computer profile for you. And then we run it through their model,” Leibowitz says. “And their model basically gives me a red light or green light.”
But what’s the point of the preapproval, besides sellers liking it? Well, you can’t actually get approved for a mortgage before you have a purchase agreement in your hands; banks won’t allow it. So, by getting preapproved, you’re not only showing the seller you can get a mortgage, but you’re also making it much easier to get that mortgage once you’ve completed the deal. Win-win!
“When we do submit it to underwriting, we get a quick approval. Because we’ve done a fair amount of the heavy lifting already,” Leibowitz says.
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Rego Park
63-85 Woodhaven Boulevard
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Jackson Heights
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$429,000
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Sunnyside
41-42 42nd Street
$448,000
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Rego Park
65-65 Wetherole Street
$549,000
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Forest Hills
113-14 72 Road
$579,000
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Springfield Gardens
137-12 167th Street
$429,000
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2
Forest Hills
67-07 Yellowstone Boulevard
$539,000
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Forest Hills
72-10 112th Street
$359,000
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1
Forest Hills
75-40 Austin Street
$460,000
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1
Astoria
21-17 31st Avenue
$535,000
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1
Jackson Heights
88-10 34th Avenue
$399,000
2 |
1
How Long Does It Take to Be Preapproved or Prequalified?
It depends on the brokerage, but both processes are typically quick. Both Niyazov and Leibowitz say a borrower should hear back about a preapproval within a few days. Prequalifications are usually instantaneous since there’s not any paperwork to fill out.
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Mariners Harbor
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$438,000
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New Springville
1440 Forest Hill Road
$598,888
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Elm Park
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Shore Acres
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Graniteville
483 Willow Road East
$399,000
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Mariners Harbor
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$475,000
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Dongan Hills
408 Garretson Avenue
$588,800
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Huguenot
83 Mimosa Lane
$569,000
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Elm Park
148 Trantor Place
$475,000
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Great Kills
4199 Amboy Road
$359,900
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1
Clifton
43 Osgood Avenue
$478,800
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1
Preapproval vs. Prequalification: Tips to Keep in Mind
Just because you know your credit score doesn’t mean you know your mortgage score, especially if you’ve never had a mortgage before. That’s why mortgage brokers must pull your actual credit report to see where you stand. Leibowitz says many clients protest because they believe their credit score will go down, but checking your credit is a vital part of the process.
Often, problems with your credit score don’t appear until you’ve pulled it. For example, Leibowitz found out about a collection when he refinanced his home.
“You really need somebody to look at it just to make sure there are no skeletons in the closet,” he says. “My skeleton was with Spectrum regarding my cable box, and it tanked my credit score. It was a mistake on their part, but it took a while to correct and remove from my credit report.”
Additionally, preapprovals and prequalifications have “expiration dates,” primarily because bank statements and credit statements are only viable for a certain amount of days. Typically, a preapproval is only valid for about three months, Niyazov says. However, you can renew it if you allow your broker to pull your credit every 90 days.
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