Mortgage Prequalification: What is it, and how do you get it?
Key Takeaways
- Pre-approval and prequalification for a mortgage are two different things. A pre-approval is a more detailed estimate based on reviewing your financial documentation, while a prequalification is a quicker estimate based on what you can afford to buy.
- It usually takes a few minutes to become prequalified, and you are not required to provide any paperwork proving your income, debts, or anything else.
- Because lenders perform a soft credit check, most prequalifications should be something other than harm your credit score.
Most likely, you've seen advertisements, billboards, or banners that say, "Get prequalified for a mortgage now!" Knowing your homebuying budget can be aided by obtaining a mortgage prequalification. But since it's only an estimate, you shouldn't use it to submit a bid on a house. This article covers everything you need to know about mortgage prequalification, including information on applying for a loan and what makes it different from a mortgage pre-approval.
What is Mortgage Prequalification?
When you are mortgage prequalified, a mortgage lender has estimated how much house you can afford using a soft credit check and some primary financial data about you.
To be prequalified for a mortgage, you must give the lender specific financial data, such as:
- Your income
- Your debt
- Your financial assets, like savings, checking, retirement, and investment accounts
Telling the lender how much you want to borrow and how much you want to put down as a down payment is necessary. The lender will also inquire about past bankruptcy or foreclosure history. Depending on several factors, including the type of bankruptcy and how long it has been since it occurred, you may not be eligible for a mortgage.
After receiving a loan pre-approval and having your offer on a property accepted by the seller, you can apply for the actual mortgage.
How to Prequalify for a Mortgage
Most potential homebuyers apply for a mortgage prequalification online or over the phone, though every mortgage lender is unique. Most of the information required—if not all—will be things you already know without having to do much research, such as your Social Security number, employment location, and income.
According to Nashville, Tennessee-based real estate agent Will Reynolds, "Prequalification is an early step in obtaining financing." "This is just the first, but crucial, step in the process; it's not a loan guarantee."
Also, the process is speedy. After entering your information, it should take a few minutes to receive your response. If you decide to buy a house, you could get prequalified quickly because of how quickly the process progresses.
Mortgage prequalification vs. Pre-approval
When you get prequalified, lenders accept your word regarding your finances; they don't need official documentation. Prequalification does not imply pre-approval; instead, it will give you an idea of what you can afford. Prequalifications and pre-approvals differ in other important ways as well, such as:
Mortgage prequalification explained
- What you need to submit: Provide information on your income, how much you want to borrow, and your down payment, plus submit it to a soft credit check.
- How long it takes: Usually only a few minutes
- Why it matters: It can help you estimate how much house you can afford
An explanation of mortgage pre-approval
- You must submit Documents proving your income, debt, bank accounts, tax filings, and more. The lender will also check your credit history/score.
- How long it takes: In some cases, it takes up to 10 days, although many online lenders offer pre-approvals within a few minutes.
- Why it matters: You'll have evidence that you're a severe buyer with financing lined up.
Despite the similarity in sound between these two terms, a pre-approval is more significant. You should have a pre-approval letter in your possession before putting in an offer on the house. It gives the seller additional evidence that you can close the deal.
However, you can use a prequalification to determine your budget before looking at houses; usually, there is no cost.
Mortgage Prequalification FAQ
Does getting prequalified affect your credit score?
Prequalification for a mortgage usually only entails a soft credit check, which does not affect your score. Find out from mortgage lenders how their prequalification procedure is set up and if a hard or soft credit check is part of it.
Hard credit checks are typically only counted as one inquiry when comparing mortgage offers on your credit report as long as you apply within 45 days. Your credit will only be impacted by the first application if, as you should have done, you were comparing rate quotes from several lenders during that time.
What is a prequalification letter?
A prequalification letter is a document from a mortgage lender that details the maximum amount of credit you may be eligible for. When making an offer on a house, it cannot be used to confirm financing and is not a firm commitment to lend.
How long does prequalification last?
While prequalification and pre-approval times vary by lender, they typically last 30 to 90 days.
Which documents are needed during prequalification?
To be prequalified for a mortgage, you must not submit any documentation. A mortgage prequalification is a preliminary screening, as opposed to a pre-approval. You won't have to provide evidence to support the information you submit; instead, you will probably need to respond orally to questions or complete an online form.
Should I get prequalified for a mortgage?
Get a prequalification if you need help figuring out where to begin with your budget for a home purchase. You can skip the prequalification process and get preapproved if you are sure of your budget, have compared lenders, and are eager to start looking for a home.
What should I do next after getting prequalified?
Obtain pre-approval before you begin your home search after you have been prequalified for a mortgage. Pre-approval requires submitting more paperwork than prequalification for your lender to evaluate your financial status. You'll be in a great position to start putting in offers on houses, submit your last loan application, and finish the purchase once you've been preapproved.
0 Comments