Some might say that being out of debt is the equivalent of financial freedom, but one thing most people invest in is their homes. Buying a home is one of the most exciting moments in life. Like any big purchase, however, there are several steps you have to take before you can walk through the door of your own home. One of the first steps is to get prequalified for a mortgage.
In order to get prequalified for a mortgage, you’ll need to schedule an evaluation with a lender. In this evaluation, you and the lender will look over your financial situation to determine whether or not the lender would be willing to loan you the money for the home, and how much money that might be. The process may differ between lenders, and some will provide a prequalification based on self-reported financial information.
Make it easier to get prequalified for a mortgage by knowing the process
Of course, before you can meet with a lender, you’ll need to find a mortgage lender to work with. You can ask friends and family members in your area for recommendations, or you can search online for reputable mortgage lenders near you. Once you have found a mortgage lender to work with, you will need to provide them with some basic information involving your financial history. The mortgage lender will also run a credit check to see a clearer picture of your financial standing.
If the credit report and financial history are appropriate, the mortgage lender will then provide you with a prequalification letter. The prequalification letter will have the total amount that the lender is willing to loan you.
There are benefits behind receiving a prequalification letter from a mortgage lender. Not only do you have an understanding of the loan you are eligible for, but you will have a better chance at getting the home over a candidate without a prequalification letter. The prequalification letter labels you as a qualified buyer who is serious about making a purchase. This can help you stand out in the eyes of the seller. Having a prequalification letter also helps potential home buyers understand what properties are in their budget and which ones are not.
Some sellers will require all potential buyers to submit a prequalification letter. Getting a prequalification letter early in the home buying process will leave you prepared for instances like these.
People who attempt to get prequalified for a mortgage and fail can still make proactive moves to better their financial situation. For instance, working to improve a credit score, reducing debt, or fixing any errors found on a credit report are good starting places. Furthermore, saving more money for a down payment on a house can also help in getting prequalified for a mortgage.
Being prequalified for a mortgage is not the same as being preapproved for a mortgage
It is important to understand that being prequalified for a mortgage is not the same as being pre-approved for a mortgage. In fact, being prequalified for a loan does not even guarantee a loan.
A preapproval for a mortgage requires verification of financial and credit history, whereas a prequalification for a mortgage does not have to be as official. It is possible that some lenders may only provide a prequalification letter after looking at the true financials, but other lenders may just ask for basic information in order to provide a prequalification letter. Overall, a preapproval for a mortgage presents a stronger sign of being able to afford a property than a prequalification letter. If you want to have a higher level of credibility while attempting to buy a home, then it is a smart move to get preapproved for the mortgage.
What has your experience been like with prequalification or preapproval of a mortgage?
*This post has been updated from a version published in 2021.