andresr/GettyImages; Illustration by Hunter Newton/Bankrate
Key takeaways
- Mortgage prequalification is a fast estimate of how huge a mortgage you may get.
- Prequalification doesn’t require paperwork or a tough credit score verify, so it will not negatively influence your credit score rating.
- Prequalification will help set up a common dwelling shopping for price range, nevertheless it’s not a dedication for financing, like preapproval.
- Prequalification is completely different from preapproval, which entails submitting documentation and a tough credit score verify, and holds extra weight when making a suggestion on a house.
You’ve in all probability seen the advertisements or banners or billboards: “Get prequalified for a mortgage now!” Mortgage prequalification will help you identify your homebuying price range, by supplying you with a tough sense of your borrowing energy. Nonetheless, it’s only an estimate, and it gained’t assist you a lot if you wish to make a tough provide on a house.
Right here’s the whole lot to learn about mortgage prequalification, together with what it’s, easy methods to get it and the way it differs from a mortgage preapproval.
What’s mortgage prequalification?
Mortgage prequalification exhibits {that a} mortgage lender has estimated how a lot home you may afford primarily based on primary monetary details about you. It’s a preliminary indication whether or not you will get a mortgage, and the way a lot that mortgage could be.
Keep in mind, this isn’t a mortgage dedication or a assured quantity. Neither is it an official utility. Making use of for the precise mortgage comes after a vendor accepts your provide on a house.
How one can prequalify for a mortgage
Most potential homebuyers search a mortgage prequalification on-line or by cellphone. To prequalify for a mortgage, you’ll want to supply the lender with data on:
- Your revenue
- Your employment
- Your month-to-month money owed or obligations
- Your monetary property: financial savings, checking, retirement and funding accounts
- Your Social Safety quantity
- Your deliberate down fee
- Your historical past of bankruptcies
“Prequalification is an early step in acquiring financing,” says Will Reynolds, an actual property agent primarily based in Nashville, Tennessee. “This isn’t a assure of a mortgage, however merely a primary, however essential step, within the course of.”
The method is fast, too. The lender takes your information and evaluates it, typically working a comfortable credit score verify. After inputting your information, it is best to have your reply inside minutes.
Why get prequalified?
Getting prequalified has an a variety of benefits. First, it could actually assist you set up a ballpark homebuying price range: When you have a way of how a lot you may finance, it’ll assist decide how a lot dwelling you may afford total. That approach, you’re much less prone to be taking a look at homes or neighborhoods outdoors your worth vary.
Getting prequalified may also assist expedite the mortgage course of. Whereas you’ll have to apply and submit precise paperwork this time, you”ll have a way of what kind of information the lender desires, and might be prepared with figures and paperwork.
Whereas most dwelling patrons can profit from getting prequalified, it’s not all the time mandatory. For instance, when you have a transparent sense of your worth vary, have in contrast lenders and have gotten your funds in form, you may skip the prequalification and apply to get preapproved.
Mortgage prequalification vs. preapproval
Whereas they sound lots alike — and are generally used interchangeably — prequalification will not be the identical as preapproval.
With a house mortgage prequalification, lenders take your phrase about your funds; they don’t require documented proof. A prequalification gives you a way of what you may afford, nevertheless it doesn’t assure you’ll get a mortgage that dimension, or perhaps a mortgage in any respect. In distinction, a preapproval is extra of a dedication on the lender’s half —an settlement in precept to increase you a specific amount of financing, typically with an estimated rate of interest.
Extra key variations between preapprovals and prequalifications embrace:
Mortgage prequalification
- What you have to submit: Data in your revenue, how a lot you wish to borrow and your down fee
- How lengthy it takes: Normally just a few minutes
- Why it issues: May help you estimate how a lot home you may afford
Mortgage preapproval
- What you have to submit: Paperwork proving your revenue, debt, financial institution accounts, tax returns
- How lengthy it takes: In some instances, as much as 10 days, though many on-line lenders provide preapprovals inside a few minutes
- Why it issues: You’ll have proof that you just’re a critical purchaser with financing lined up
Mainly, a preapproval carries better weight. It is best to have a preapproval letter in hand earlier than making a suggestion on a house. It supplies extra proof to the vendor you can make the deal occur. Some sellers even require patrons to submit a preapproval letter with their provide.
A prequalification, however, is best suited to the just-getting-started stage. It could assist you decide your worth vary for house-hunting. You will get a letter testifying to your standing, nevertheless it gained’t lower a lot ice with sellers, because it doesn’t assure you might have backing to purchase a house.
Mortgage prequalification FAQ
Further reporting by Elizabeth Rivelli
