Mortgage prequalification may be a beneficial step in your homebuying journey. Getting prequalified can help you determine how much mortgage you can afford and if you are financially ready to purchase a home.
To prequalify for a mortgage, you need to provide the lender with some basic information about your income, credit and existing debts. You must also state how much money you intend to put down on a home. In return, the lender will provide you with an estimated amount of how much you can borrow.
Keep in mind that the prequalification is nonbinding, meaning it doesn’t guarantee you’ll be approved for a mortgage. It’s wise to learn more about mortgage prequalifications and what you need to prequalify for a mortgage before pursuing homeownership.
Mortgage prequalification helps you determine how big a loan you may be eligible for, and it usually takes a few minutes to get an estimate.
Prequalifying for a mortgage only requires you to provide basic information about your finances, whereas getting pre-approved entails submitting official documentation.
Getting prequalified is useful to learn how much you can borrow and fine-tune your homebuying budget.
What Is Mortgage Prequalification?
Before applying for a mortgage, it’s important to know how much you can borrow and whether you meet the minimum requirements for a loan. A mortgage prequalification can help you obtain that information.
With a prequalification, you have an idea of the loan size you can take on based on your financial profile. The estimated loan amount can also help you establish your homebuying budget and find a house in the right price range.
When you prequalify for a mortgage, you’ll be evaluated based on the financial information you submit. Lenders often take a look at the following factors:
- Credit score
- Income information
- Bank account information
- Down payment amount
- Desired mortgage amount
The process of prequalifying for a mortgage is fairly easy and quick, with the lender checking your self-reported information and conducting a soft credit check. You can usually prequalify online or over the phone and get an estimate within minutes.
Take note that mortgage prequalification is different from mortgage pre-approval. The latter involves pulling your credit report and verifying your financial information. The process can take up to 10 business days before you receive a pre-approval letter.
A mortgage prequalification is vital to the homebuying process. It can give you a ballpark estimate of how much house you can afford. However, it doesn’t hold as much weight as a mortgage pre-approval. That’s why prequalification is faster and more relaxed. You can usually get prequalified in a matter of minutes online.
Steps to Get Prequalified for a Mortgage
Prequalifying for a mortgage is relatively easy as long as you provide accurate and up-to-date information about your finances. Below, MoneyGeek outlines the general steps on how to prequalify for a mortgage.
When looking for a mortgage, it pays to shop around to find the best lender for your needs and circumstances. Consider different options, including online lenders, banks and credit unions.
Choosing the best lender for you isn’t just about securing the lowest interest rate. You want a trustworthy company that you can work with for 15 to 30 years. Aside from checking the type of home loans and interest rates a lender offers, it’s also important to look into its experience and reputation. You may also confirm whether the lender offers discounts or mortgage points.
Prequalifying for a mortgage entails submitting basic information about your finances to a lender. These include your income, debts and assets.
Keep in mind that mortgage prequalification relies solely on the financial details you hand over. That’s why providing accurate information is essential to get precise results. Otherwise, a prequalification won’t be helpful to your homebuying journey.
Once you’ve submitted your information, the lender will review everything and give you an estimate of how much you can borrow. In some cases, the prequalification process may involve your lender conducting a soft credit inquiry.
Once a lender prequalifies you for a mortgage, it will supply you with a mortgage prequalification letter. This letter usually contains the estimated amount it’s willing to loan you based on your financial details.
It’s important to remember that a prequalification letter is not a guaranteed loan offer. It also doesn’t have much merit compared to a mortgage pre-approval letter. Home sellers usually look for a pre-approval letter instead because it shows that you are serious about purchasing a home.
Still, mortgage prequalification is useful for learning about different mortgage options and helping you find the right fit for your needs.
Although mortgage prequalification is not a requirement, it can be helpful to prequalify for a mortgage before starting your house-hunting journey. Doing this can give you an idea of how much home you can afford.
Mortgage prequalification can help you establish your homebuying budget. With this in mind, you can search for a home within your price range.
Should You Get Prequalified?
It’s easy to confuse mortgage prequalification with mortgage pre-approval, but there are significant differences between the two. A prequalification can be issued without much scrutiny of your financial information, whereas a pre-approval needs extensive verification.
Prequalifying for a mortgage is typically simple and quick. You only need to submit basic financial details, which your lender will review to give you a ballpark figure of how much they are willing to loan you. You can do this online or over the phone.
On the other hand, getting pre-approved requires submitting various documents such as pay stubs, W-2 statements, tax returns and more. Your lender will verify your information and pull up your credit report. Because there are more requirements, the process can take up to 10 days.
Whether you should prequalify for a mortgage ultimately depends on your needs and finances. You may skip this step if you’re already confident about your finances and borrower profile.
Comparison of mortgage pre-approval and prequalification
Shows that you have been
Gives you an estimate of how
Up to 90 days
No expiration date
Credit history, pay stubs, bank
Basic details about your credit,
Once you submit the necessary
Submit basic financial information
Frequently Asked Questions About Mortgage Prequalification
Prequalifying for a mortgage may be a helpful step in your homebuying process. MoneyGeek answers some frequently asked questions to help you learn more about mortgage prequalification.