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By Jay Romano The New York Times, November 14, 2006 - Q. What is the difference between being prequalified and preapproved for a mortgage? A. Michael L. Moskowitz, president of Equity Now, a mortgage banker and direct lender in Manhattan, said that while the two terms appear similar - and are sometimes incorrectly used interchangeably - they are quite different. Prequalification, Mr. Moskowitz said, means that based upon income, asset, liability, and personal information a borrower has provided, a lender will indicate how much of a mortgage the borrower should be able to get at a particular interest rate. However, he said, since the lender is basing the prequalification on information provided by the borrower, it is possible that some of that information may not meet the lender's standards when the time comes to verify it. For example, if a borrower says he earns $250,000 a year, but it turns out that $50,000 of that was a one-time, year-end bonus, the lender might not take the bonus into consideration. As a result, Mr. Moskowitz said, "In many cases, prequalification really doesn't mean much." Preapproval, on the other hand, usually does. With a preapproval, he said, the borrower submits a mortgage application to the lender - along with any required income verification information - and the lender runs a credit check on the borrower and processes the application. After that, the lender gives the borrower a written approval for the maximum amount of money the borrower qualifies for at a specific interest rate. "A preapproval is not a commitment," Mr. Moskowitz said, explaining that before a lender can issue a commitment, the property being purchased must be appraised. At the same time, he said, preapproval provides assurance to a seller that a borrower will be able to get the required mortgage, if the appraisal is acceptable to the lender. "A lot of buyers get a preapproval before they start looking for a house," Mr. Moskowitz said. "And a lot of brokers don't even like submitting a bid without the buyer having a preapproval for the mortgage that will be needed." |
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