Understanding Mortgage Prequalification vs. Preapproval

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When buying a home, the terms prequalified and preapproved are often used interchangeably, but they have distinct meanings.

Prequalification vs. Preapproval

Prequalification is an informal initial step that gives potential homebuyers an idea of what they might be able to afford. It typically involves self-reported financial information and can be done online or over the phone. In contrast, preapproval is a more detailed process that requires lenders to thoroughly review your financial situation.

After this review, you’ll receive a letter stating you’ve been preapproved for a mortgage up to a certain amount. While it’s not a final commitment, it shows sellers that you’re serious about purchasing a home.

What is Prequalification?

Prequalification helps homebuyers determine a rough budget for house hunting. The process involves providing income information and possibly undergoing a soft credit check, which doesn’t affect your credit score. Based on this information, lenders give a general estimate of how much you might be approved for.

The process is simple—no mortgage application, fees, or financial documentation is needed. Prequalification can be done online and serves as a good starting point for understanding your potential buying power.

A Zillow survey found that about 27% of prospective buyers who haven’t started working with an agent have been prequalified. While prequalification doesn’t guarantee approval for a specific loan amount, it can help buyers narrow their options and begin discussions with lenders.

After prequalification, buyers usually receive a letter that can be shared with agents or sellers as proof they’re engaging with a lender.

What is Preapproval?

Preapproval comes after prequalification and is a more formal step. It involves filling out a mortgage application, providing financial documentation (such as bank statements and paystubs), and undergoing a hard credit check.

According to Bank of America, “preapproval is as close as you can get to confirming your creditworthiness without having a purchase contract in place.” Once preapproved, you’ll receive a letter indicating the maximum loan amount you qualify for. While it’s not a firm commitment, it typically lasts up to 90 days, depending on the lender.

Preapproval shows sellers you’re serious about purchasing, which is an advantage in a competitive market. According to Zillow’s 2022 Consumer Housing Trends Report, 85% of sellers prefer offers from preapproved buyers. Many real estate agents also favor showing homes to buyers with preapproval letters.

You can get preapproved with more than one lender, which may help you secure a better deal. Research from Freddie Mac found that obtaining multiple quotes could save buyers up to $1,200 annually. However, multiple mortgage applications within a short time frame may impact your credit score.

When to Get Prequalified or Preapproved

If you’re just beginning to consider buying a home, prequalification is a simple first step. It offers a quick, hassle-free overview of your borrowing potential.

If you’re ready to make a purchase, it might be better to skip prequalification and proceed directly to preapproval. Keep in mind that preapproval letters have expiration dates, so it’s best to obtain one when you’re prepared to start house hunting and make an offer.

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Northshore for a Cure: Tunes, Tastes, and Cheers for a Cure, November 2, 2024

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A cancer charity that is a live concert in Slidell.

Northshore For the Cure

Northshore Business Park
140 E I-10 Service Rd
Slidell, LA 70461

November 2, 2024
11am – 7pm

Price: $5 – $15

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Reviving Bowling in Mandeville with a $2 Million Investment

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Cao, an entrepreneur known for turning around a bowling alley on the West Bank of Jefferson Parish, is making a $2 million investment to refurbish and reopen the long-closed Tiffany Lanes on La. 22 in Mandeville. The new venture, named Paradise Alley, is set to become the second bowling alley in St. Tammany Parish, joining the existing alley in Slidell.

“I think the area is primed,” said Cao, highlighting the need for more family entertainment options, as the alley has been closed for over a year.

The upgraded Paradise Alley will feature 32 lanes, with a focus on league play during weekdays and open bowling on weekends. Friday and Saturday nights may also include live music, adding a fresh twist to the traditional bowling experience. “I’d like to open sometime in September,” Cao mentioned, although the timeline depends on securing necessary permits.

From Banking to Bowling: Cao’s Journey

Cao, who spent 17 years in banking and also works in real estate development, is no stranger to the bowling business. In 2016, he led a $2.5 million renovation of Westside Lanes in Harvey, transforming the 20-lane alley. “I learned a lot from that,” he said, noting that Paradise Alley will be nearly twice the size of his previous project.

The 35,000-square-foot building in Mandeville has been extensively renovated. “I pretty much gutted everything,” Cao said, mentioning the installation of new lanes and the removal of drop-down ceilings to create a more open, inviting atmosphere.

Bowling’s Evolution in the U.S. and New Orleans

The U.S. bowling industry is still bouncing back from the challenges of the pandemic, but there’s a rich history in the New Orleans area. Bowling surged in popularity during the 1950s and 1960s, with iconic local alleys like Bowlarama, Sugar Bowl Lanes, and Mid-City Lanes, which later became Rock ‘n’ Bowl, known as much for its live music as for its bowling.

While bowling’s future was questioned in the early 2000s, Cao believes it remains an attractive entertainment option — if done right. “Bowling has evolved,” he explained. “You have to offer more.”

Modern bowling centers now emphasize open, updated facilities with enhanced lanes, better food options, and added entertainment to draw crowds.

What to Expect at Paradise Alley

Though Paradise Alley’s menu will stick to classic bowling alley favorites like pizza, burgers, and fries, Cao promises a tastier experience. “It’s tough to change the mindset of what bowling alley food is,” he admitted with a laugh.

Weekends will likely feature live music or a DJ, but Cao doesn’t plan to keep the venue open past midnight.

As Mandeville gears up to welcome Paradise Alley, Cao is hopeful that his blend of classic fun and modern amenities will create a vibrant new gathering spot for the community.

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Mortgage Rates Drop Significantly From Last Year: What Homebuyers Should Expect Next

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Mortgage rates are significantly lower than they were a year ago, based on the latest Freddie Mac data. Currently, the average 30-year fixed-rate mortgage is at 6.35%, while the average 15-year fixed-rate sits at 5.47%. “The 30-year rate remains unchanged from last week but is well below last year’s 7.12%,” writes Aarthi Swaminathan of MarketWatch.

What’s next for mortgage rates? Experts suggest not to expect drastic changes. Mortgage rates often shift ahead of any Federal Reserve decision, so potential Fed rate cuts may already be reflected in the current rates, says Jacob Channel, senior economist at LendingTree. He notes that a larger-than-expected 50-basis-point cut from the Fed could lead to lower mortgage rates, especially if inflation slows more than anticipated or if economic conditions worsen. Meanwhile, Greg McBride, chief financial analyst at Bankrate, emphasizes that the extent of any rate declines will depend on the economy’s health and the Fed’s response.

Could rates drop further? Lawrence Yun, chief economist at the National Association of Realtors, predicts mortgage rates will decrease to 6.2% by September, resulting in more home inventory and buyers. However, rates are unlikely to dip to 5% or lower, given the federal budget deficit. Danielle Hale, chief economist at Realtor.com, anticipates rates at around 6.3% by the end of 2024. Channel expects 30-year fixed mortgage rates to hover between 6% and 6.5% in September, with a possibility of reaching the 5% range if economic slowdowns and further Fed rate cuts occur.

While rates are expected to decline, some experts, like Holden Lewis from NerdWallet, refrain from pinpointing exact figures. Lewis notes that mortgage rates may drop in September as inflation eases and the Fed cuts short-term rates for the first time since 2020.

How does this affect homebuyers? September is a slower month for the housing market, so minor rate reductions might not attract many buyers, says Lewis. However, as rates decrease, they could set the stage for a stronger buying season in the spring and summer.

Even with modest rate drops in September, they’ll remain lower than they have been in the past year. This could boost home buying and refinancing activity, as prospective buyers and homeowners take advantage of better rates. That said, rates will likely still be higher than the ones many current homeowners locked in during the pandemic, meaning housing will remain costly and overall market activity may stay subdued, according to Channel.

Timing the market can be tricky. If you’re able to afford a mortgage at current rates and have found the right home, buying sooner rather than later might be wise, says Channel. But if you’re unsure about affordability or the rates aren’t attractive enough to trade in your current loan, it’s reasonable to wait.

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