Understanding how much money you can really spend

Preapproval is a better idea of how much money you will get to finance a real estate investmentWhen it comes to real estate investing, chances are that you will need some sort of financing. And it is usually a good idea to know about how much a bank will give you before you start looking into real estate investment options. This usually means prequalifying or getting preapproval. However, it is important to note that these are not the same thing. You should understand the difference so that you can avoid a nasty surprise later.

Prequalification

This is when the bank gives you an idea of what you probably qualify for. The process does not take terribly long, and can be inaccurate — to the tune of tens of thousands of dollars. Prequalification does not usually include thorough checks by the institution; it is based mainly on what you tell the bank. This means that when a more thorough check is done, you may qualify for much less.

Preapproval

This process takes much longer. But you will get a more accurate quote on what you can afford to spend on your real estate investment property. An in-depth look at your credit information is part of the process, and a bank will approve you for a certain amount — an amount that is likely to hold up under an application.

See Also