Homebuyers often hear that they should get “prequalified” or “preapproved” before shopping. Those terms can sound like two clearly defined levels of approval, but lenders may use them differently.

The Consumer Financial Protection Bureau explains that both letters generally indicate that a lender is willing to lend up to a certain amount based on assumptions. Some lenders issue a prequalification using unverified information, while others reserve the word preapproval for a process that verifies financial information.

Ask what was actually reviewed

Instead of relying only on the label, ask whether the lender reviewed your credit, income, employment, assets, monthly debts, and source of funds. A more complete review may reveal questions earlier, when there is still time to address them.

A letter is not a guaranteed loan offer. Final approval can depend on updated borrower information, the selected property, appraisal, title, insurance, underwriting, and other conditions.

Why sellers care

A financing letter can help show a seller that a buyer is likely to obtain financing. The strength of that letter may also depend on the local market and what the seller’s agent expects to see.

For Maryland buyers, the practical goal is to understand the monthly payment, estimated cash needed, loan options, and any qualification concerns before submitting an offer.

Four questions to ask your lender

  1. Which financial documents have you reviewed?
  2. What assumptions were used to determine my price range?
  3. Could anything in my current file create a problem later?
  4. How quickly can you update my letter when I make an offer?

Build the plan before you shop

Dan’s Path 2 Buy process helps buyers review the approval, payment, cash-to-close, and next steps before house hunting.

Call Dan at 410.935.3528

Sources

This article is for educational purposes only. Program availability and eligibility requirements vary. This is not a commitment to lend. All products are subject to credit and property approval.