ABA Family Legal Guide

Buying and Selling a Home

Financing a Home Purchase

The Basics

Should I prequalify for a loan?

If you are a buyer and you are prequalified for a set amount, then you can be secure in the knowledge that the lender will make a loan in the amount that has been prequalified as long as the information supplied to the lender was accurate and the property appraises for at least the purchase price. If you are unsure about what price range is appropriate or if you are a first time purchaser, then prequalifiying for a loan can help smooth the process. You will know exactly what you can afford, and avoid the disappointment of being unable to buy a home you thought you could afford. To prequalify for a loan, buyers will need to go through most of the steps entailed in applying for the actual loan.

However, a better approach is to be preapproved. The lender will analyze and underwrite the loan, subject to the buyer finding a home and the lender obtaining a satisfactory appraisal of it, and the lender being satisfied with the condition and value of the property. Preapproval will entail the same steps as prequalification, but will generally take longer. In a seller's market, buyers that are preapproved will have an advantage over buyers that are prequalified or who have no evidence that they can obtain financing.