What is prequalification and do I need it?

So, a potential home buyer asks, what is prequalification, do I need it?

Two words used with frequency confuse both buyers and sellers. One often hears of pre-qualification and pre-approval. What's the difference and why does it matter? Pre-qualification refers to an opinion a potential buyer has been given by a lender regarding his purchasing budget. In other words, pre-qualification is basically a quick credit check, it does not mean you can get the loan. Pre-approval refers to the process whereby a buyer has had credit and other financial information actually checked out and knows with more certainty the maximum amount a lender will give. Pre-approval does not guaranty that you will actually get the loan.

Then, why would someone want or need pre-qualification and pre-approval. Both should be thought of as important steps on the path to purchasing a home. Pre-qualification makes sense because it helps one start to focus on what is affordable and available within one's budgetary range. There are many beautiful properties out there and it is very easy to spend time dreaming and then encounter disappointment when looking at homes out of ones reach. So, pre-qualification is useful.

Pre-approval however enables a buyer to get on a faster track to purchasing a home. A pre-approved buyer is a serious buyer who knows his/her budget and limitations. This is a big time saver for all parties involved. After pre-approval, a buyer should work quickly with a realtor to identify those available properties that can indeed be purchased.