Knowing how much a buyer can spend for their dream home helps them become a better buyer. It is strongly recommended that buyers speak with their bank or a mortgage company to accurately evaluate their situation.

Prequalification

Becoming "prequalified" takes only a few minutes, costs nothing and can make someone a much stronger buyer. Prequalification means you have made representations to your lender about your income, debts, credit, etc.Based on these representations, a lender will let you know what you are qualified to purchase, assuming the information provided is accurate. The lender may then write you a prequalification letter. This letter helps both buyer and seller when the time comes to make an offer. An offer submitted with a prequalification letter is a stronger offer for the buyer and a more attractive offer for the seller.While it is helpful to have a prequalification letter, a precommitment letter is an even stronger statement about a buyer's capability to make a purchase.

Preapproval

A preapproval letter means a buyer has submitted an application giving the lender specific information about income, debts and credit, etc. and the lender has verified this information. Based on these verifications, a lender will issue a preapproval letter. This tells the seller that a buyer is able to get financed by their lender for a certain mortgage amount, assuming there are no substantial changes (e.g. job loss) in their situation. A preapproval letter is a much stronger statement about a buyer's readiness to purchase and, accordingly, makes for a much stronger offer.