Which statement about prequalification and preapproval is correct?

Which statement about prequalification and preapproval is correct?

• A. Prequalification is formal with verification of income and assets; preapproval is informal.
• B. Preapproval is an informal estimate based on oral information; prequalification is a formal process with verification of income, assets, credit, and a conditional loan commitment.
• C. Prequalification is an informal estimate based on oral information; preapproval is a formal process with verification of income, assets, credit, and a conditional loan commitment.
• D. Prequalification requires a binding loan commitment; preapproval does not.

Answer: (C)

Understanding how prequalification differs from preapproval hinges on verification and commitment. Prequalification is an informal estimate based on oral information about income, assets, and debt, with no verification. Preapproval is a formal process in which the lender verifies income, assets, and credit, pulls a credit report, and provides a conditional loan commitment for a specific amount, pending appraisal and final underwriting. This matches the statement: prequalification is an informal estimate, while preapproval involves verification and a conditional loan commitment. In practice, prequalification is quick and informal, whereas preapproval requires documentation (like pay stubs, tax returns, bank statements) and is more credible to sellers, though it isn’t a guaranteed loan until underwriting is complete.

Understanding how prequalification differs from preapproval hinges on verification and commitment. Prequalification is an informal estimate based on oral information about income, assets, and debt, with no verification. Preapproval is a formal process in which the lender verifies income, assets, and credit, pulls a credit report, and provides a conditional loan commitment for a specific amount, pending appraisal and final underwriting. This matches the statement: prequalification is an informal estimate, while preapproval involves verification and a conditional loan commitment. In practice, prequalification is quick and informal, whereas preapproval requires documentation (like pay stubs, tax returns, bank statements) and is more credible to sellers, though it isn’t a guaranteed loan until underwriting is complete.