While the purchase of your home will probably be the biggest investment of your life, there are quite a number of hurdles to overcome before you are in a position to purchase your home.  The main hurdle for many people is the granting of a loan to fund the purchase, something which can normally be broken down into two steps, Pre-qualification and Approved.  So what are prequalified and approved loans?

Pre-qualification

As the terms suggests this is a very tentative loan agreement which while agreed in principle still needs to be rubber stamped in practice before the funds can be forwarded to you.  After providing a number of basic details such as age, employment record and income, the financial institutions will be able to calculate a “prequalification” figure, i.e. an amount which they could provide assuming that there are no problems with your credit history.

Normally those in receipt of a prequalification loan will not have provided details of their social security number and other details which can be used to confirm the borrower’s credit history.

Approved

An approved loan is basically the next step from a prequalification loan, assuming that the borrower’s credit history holds no shocks or problems for the financial institution lending the money.  Once an approved loan has been confirmed there is no reason why the client could not purchase a property within this price range (subject to the normal property checks, etc) as the money is in effect “waiting for them”.

Conclusion

For many people prequalification is the first step towards an approved loan, which basically means that your situation has been confirmed and a loan granted.  However, for those with credit history issues a prequalification loan will not always mean an automatic move to the approved status.  As a consequence, it is ill advisable to agree any financial transaction using a prequalified loan agreement as this is in no way guaranteed by the financial institution involved and is for indication purposes only.