When many people think about getting financing for a project, they envision applying for a loan and either being approved or not. That may leave a great deal of uncertainty resting on the application outcome, but there is a step that can precede applying, which will give the Customer a much clearer picture of their borrowing capacity.
Prequalification is a fast, seamless way for your Customers to get an early view of how they might fund their project, even as they are still considering the scope of the work. As the service provider, your Business also benefits from prequalification. While your Customer is finding out what they may qualify for and based on the estimated loan amount, you can assist in helping them build out and customize the right project to suit their budget and their preferences for their home. Working in coordination with your Customer in this manner will create greater satisfaction and loyalty.
Your Customer will be glad you offered prequalification as the first step because it takes the guesswork or potential awkwardness around finances out of the equation as they are considering the work that they’d like to have done. And, most importantly, it does this without impact on their credit score until they decide to move forward with submitting the application.
It is important to inform your Customer that prequalification does not guarantee final approval. Prequalified borrowers must still apply for the loan. It does provide clarity for you and your Customer as to the amount of credit for which they are likely to be approved. The process of prequalification is also much easier and faster than an application. It requires less data and most Customers receive results in just a few seconds.
Since prequalification has no effect on the applicant’s credit score, a homeowner who is not approved for the amount they desire can add a co-applicant to increase their chances of success. This can be a significant benefit.
It’s important not to confuse prequalification with preapproval, and essential to convey this distinction with your Customers so they are clear on what’s occurring at each step. Preapproval is virtually the same as a loan application and requires a hard credit inquiry, which will affect your Customer’s credit score. Preapproval is often used by consumers who are seeking to buy a home to assure sellers that they can get the funding necessary to complete the purchase.