To prequalify you for a mortgage, a lender runs a quick check of your income and assets. Many real estate brokers and sellers require that you have this before showing you a home or considering your bid.
But being prequalified doesn’t mean the bank is ready to hand over a loan to you. That comes following mortgage preapproval. Getting preapproved is a lengthier process, where the lender takes a deep dive into your financial and credit history.
It will typically review the last two years of your income and any self-employment income. The lender will also take into account all of your assets, including savings accounts, certificates of deposit (CDs) and retirement plans like 401(k)s and individual retirement accounts (IRAs).
Additionally, the bank will look at your debt and how good you’ve been at making your payments. So if you have a lot of debt or have not been sending in your payments regularly, you may want to improve either situation before you go mortgage hunting, even if it takes some time. The reward would be an improved credit score, which can help you secure a loan rate and terms.
But you’re going to need to submit a lot of paperwork and information to get preapproved for a mortgage whether you’re doing it online or in person.