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How to Get Prequalified for a Mortgage

Buying a home can be complicated. Prequalification simplifies it. The process gives people guidance when shopping for their future home. While a prequalified mortgage does not guarantee a loan, there are several benefits for borrowers.

Prequalified vs. Preapproved Mortgage

As you prepare to buy a house, you’ve probably come across the phrases qualified and preapproved mortgage. While the two are similar, they are not synonymous.

Mortgage prequalification is when a lender evaluates how much house you can afford. Lenders see if you meet the minimal requirements for a loan, and how big the loan should be. Prequalification is ideal for people who are considering homeownership but not necessarily committed.

Mortgage preapproval is more thorough. It involves some of the same steps as prequalification, though borrowers have to submit financial documents. One stipulation is that borrowers have to get a hard credit check. Lenders review the information for a more precise idea of the home borrowers can afford.

What Are the Benefits of Prequalified Mortgage?

ITS SETS A CLEAR BUDGET

When you are looking for a home, it’s easy to get carried away looking at homes out of your price range. Prequalification keeps those urges in check. While you can still borrow the maximum amount, prequalification sets realistic expectations for your budget.

During prequalification, a lender will give you a range for how much home you can afford. That way, you can stay within the estimate while house hunting. Remember, a mortgage payment is one part of a budget. Make sure you feel comfortable with the loan amount before proceeding.

IT SHOWS SELLERS YOU’RE SERIOUS

Whether you are a home buyer or a seller, no one wants to waste their time. Getting prequalified demonstrates to sellers that you’re serious about home buying. In some cases, realtors will insist on seeing a prequalification letter before showing a home.

IT IS EASIER THAN PRE-APPROVAL

Prequalification is more straightforward than preapproval. While both processes take one to three days, prequalification does not require as much paperwork. In most cases, a lender only needs your credit report and some bank statements. Loan preapproval is more in-depth and requires evidence of debts, liabilities, other assets, and tax returns.

IT SAVES TIME

The average homebuying process takes three to six months. Loan prequalification lets you chip away at that number. For instance, having an estimate for your loan’s value will keep you from looking at unnecessary houses. When it comes to negotiating with sellers, you will have a sturdier position knowing your budget, too.

Additionally, prequalification streamlines homebuying. The process requires you to get your papers in order in advance. It also gives you the chance to catch and dispute any errors on your credit report or financial documents.

What Do Credit Unions Look for During Prequalification?

Prequalification takes into account several factors, ranging from credit profile to gross income. While each lender has a slightly different way of calculating qualification, here is the essential information you’ll need:

• Gross income
• Credit score
• Proof of employment
• Monthly debt payments
• Ideal mortgage term and interest rate
• Records of bankruptcy

How Do I Get Prequalified for a Mortgage?

Prequalification is the first step in the homebuying process. A lender will be there to help you take it. All you have to do is set up a meeting with your lender or get a prequalified mortgage online.

Afterward, the lender’s underwriter will review the loan application and other financial documents to assess creditworthiness. In the meantime, you can find your dream home, make an offer, and return to the lender with the exact purchase price.

The Bottom Line

If home buying feels overwhelming, prequalification can make it more manageable. Prequalification gives home buyers a way to estimate how much home they can afford while simplifying the mortgage loan process. That way, you can zero in on your perfect house sooner rather than later.

If you are confident about your finances and commitment to homeownership, you should consider preapproval instead.