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Prequalification vs. Preapproval for VA Home Loans

When it comes to obtaining a VA home loan, there are two important steps in the mortgage process that you should be familiar with: prequalification and preapproval. While both play a crucial role in securing your dream home, it's helpful to understand each process and the key differences between them.

What is prequalification?

Prequalification is the initial step in the VA home loan process, coming before the preapproval process. During this stage, lenders will evaluate a potential borrower's creditworthiness, provide an estimated loan amount they may qualify for and initiate the process of collecting the necessary documents for the subsequent preapproval process.

In other words, prequalifying for a VA loan will give you a better idea of how much home you can afford, based on the financial information you have provided to the lender. However, the precision of this loan estimate largely depends on the accuracy of the financial information given to the lender.

How do I prequalify for a VA loan?

To prequalify for a VA home loan, you'll need to provide your VA lender with basic financial information, which allows them to determine your eligibility and the potential loan amount you may qualify for. This required information may include:

  1. Desired loan amount
  2. Current employment and employment history
  3. Gross monthly income
  4. Assets and liabilities
  5. History of bankruptcies, foreclosures, judgments, etc.
  6. Previous defaults on federal debts
  7. Previous homeownership

Having this information readily available lets you streamline the prequalification process and take the first step toward securing your VA home loan.

What is preapproval?

Preapproval is a more detailed process than prequalification. This step involves lenders verifying the borrower's financial information to provide a comprehensive evaluation of their creditworthiness. Getting preapproved will give you an even better picture of how much you can afford with your VA loan, so you can confidently make a realistic offer on a prospective home.

Plus, having a preapproval letter from a reputable lender shows sellers and real estate agents that you’re a serious and strong candidate in the homebuying process. In fact, many listing agents won't even consider a potential buyer's offer if they don't have a preapproval letter in hand.

How do I get preapproved for a VA loan?

Getting preapproved for a VA home loan may seem like a daunting task, but having the right documentation prepared can make it a breeze. Required documents for VA loan preapproval generally include:

  • Driver's license or alternative form of government identification
  • DD-214 or Reserve/Guard points statements
  • Statement of service (if an active-duty borrower)
  • Recent pay stubs and bank statements
  • W-2s for the previous two years
  • Disability award letters

Once you have your financial documentation in hand, here’s what you can expect during the preapproval process:

1. Gather the required documents
2. Schedule an appointment with a VA-approved lender
3. Complete the VA loan application
4. Provide proof of income and verification of employment
5. Consent to credit check
6. Submit the loan application for preapproval evaluation
7. Receive your preapproval decision

What is the difference between prequalification and preapproval?

Prequalification and preapproval are two distinct steps in the VA loan application process, and it is crucial for prospective borrowers to understand the difference between them. See the chart below for a quick comparison:

Category Prequalification Preapproval
Benefit Provides initial loan estimate to guide buyer’s home search Helps buyer understand how much they can afford and strengthens offer
Length of Process Quick process–can be completed online in less than an hour More time-consuming–generally receive preapproval letter within 10 business days of providing requested information
Duration Provides an estimate lasting until official preapproval Typically valid for 60-90 days–expiration date will vary by lender
Loan Amount is a(n)... Estimated range based on financial information provided by the potential borrower Specific amount determined by the lender after verifying financial information

The goal of prequalification is to give borrowers an estimate of how much they can afford, helping them focus their home search within their budget. However, prequalification is not a guarantee for funding, as it is based on limited information and does not involve an in-depth evaluation of the borrower's financial situation.

In contrast, preapproval is a more comprehensive and formal evaluation of a borrower's financial status. During the preapproval stage, the lender will verify the borrower's financial documents, including tax returns, pay stubs and bank statements to determine VA loan eligibility. Once a borrower is preapproved, they will receive a written commitment from the lender specifying the loan amount they are preapproved to borrow. This gives borrowers a significant advantage during the home search, as sellers and real estate agents view preapproved buyers as serious contenders. Getting preapproved will also speed up the loan closing process, as most of the necessary paperwork will already be completed during this stage.

Key Differences Between VA Prequalification and Preapproval:

Prequalification Preapproval
Requires basic financial information
Requires credit check*
Requires documentation to verify financial information
Reveals interest rate
Guarantees VA loan approval

*Note: Prequalification may sometimes result in a soft credit inquiry. This requirement will vary by lender.

Frequently Asked Questions: VA Prequalification vs. Preapproval

Which is better: prequalification or preapproval?

While each stage has its own benefits, preapproval is a more comprehensive process and will give you a more accurate estimate of how much home you can afford with your VA mortgage. However, neither prequalification nor preapproval will guarantee that you will secure a loan from the lender.

Do I need to be prequalified before I get preapproved?

Though it is not required, it would be beneficial to go through the prequalification process before seeking preapproval for a VA loan. Getting prequalified will give you a rough idea of your loan eligibility, helping you narrow your home search to properties within your budget.

When should I get prequalified or preapproved?

You should get prequalified before you begin searching for potential homes, as this process will give you a better idea of what you may be able to afford. On the other hand, it's best to get preapproved before you make an offer on a home, as this makes you a stronger candidate in the eyes of sellers and real estate agents.

Will trying to get prequalified or preapproved for a VA home loan hurt my credit score?

If lenders do check your credit report during prequalification, it will likely result in a soft inquiry, which will not affect your credit score. However, the preapproval process will require a hard inquiry, which may temporarily impact your credit score. Although preapproval may have a minor effect on your credit, it is still a necessary step in the homebuying process.

How much will I prequalify/get preapproved for?

Both prequalification and preapproval will give you an estimate of how much you may be able to borrow for your VA loan. While the amount you may prequalify or be preapproved for will vary by lender, you can use a VA loan affordability calculator to get a better idea of what you may be eligible for.

Do I have to spend the amount I am preapproved for?

No, you do not have to borrow the entire amount that the lender preapproves you for. Your preapproved loan amount is the maximum limit of what you can borrow from the lender, and it’s important to borrow only what you need and feel comfortable repaying.

How long does my preapproval letter last?

The duration of validity of a preapproval letter depends on the lender, but they typically expire after 60-90 days. It is important to confirm the specific timeline with your lender to ensure your preapproval remains valid during your home search.