The process of getting your own home can be tedious and complicated, especially if you aren’t sure about what you’re doing. For instance, you’ll need to apply for a mortgage to finance your house, which is another process that requires a lot of careful planning and consideration. To make the process easier, you may want to opt for a mortgage prequalification, an early yet essential step in acquiring the financing you need to secure your home.
A mortgage prequalification is not to be confused with a mortgage pre-approval, which is a deeper and more comprehensive process that takes longer. However, they can prepare you to apply for a mortgage and find a home that suits your budget best. Here’s what you need to know about it:
All About Mortgage Prequalification
A mortgage prequalification is the first step in the mortgage application process. It provides you with an idea of how much you can borrow for your mortgage. A mortgage lender will collect basic information about you and may elect to check your credit to estimate how much you can afford for your home.
To prequalify for a mortgage, you must provide the lender with information about your finances, like your income and bank account details. You may also need to inform your lender of how much you’re planning to borrow and how much you’re willing to contribute to a downpayment.
It’s a relatively quick process since you’ll be offering them information off the top of your head. It’s important to note that it won’t guarantee you a loan as it is only the first step you’ll take, much before applying for the actual mortgage. However, it can help jumpstart things, as the seller and their agent will know that you have the ability to purchase the property. It can even give you an advantage over other people putting in offers for the property, helping you get the home you want.
The Differences Between a Mortgage Prequalification and a Mortgage Pre-approval
A mortgage pre-approval carries more weight than a mortgage prequalification. It is a complete, sweeping look into your financial situation, including your debt, income, bank accounts, credit, and tax filings. A mortgage prequalification looks at only basic financial information. A pre-approval takes ten days, although some online lenders can complete it in minutes, whereas prequalifications take mere minutes. A prequalification lets you have a realistic picture of what you can afford, while a pre-approval gives you evidence that you are a serious buyer with the financing to back it up.
Sellers often look for a pre-approval letter, so it’s essential to complete both steps. However, a mortgage pre-approval happens when you’re set on purchasing a home, and the letter provides proof that you are committed to closing the deal.
Mortgage Prequalification and Your Credit Score
One of the most important things to consider when purchasing a home is protecting your credit score. If you’re getting a mortgage prequalification, be sure to ask the mortgage lender about their process and if it includes a credit check. Typically, inquiries that do not involve a loan or credit offer do not affect your credit score. However, those that involve a credit request do.
If you’re comparing mortgage offers, credit checks are typically counted as one inquiry on your credit report as long as you apply for prequalification within 30 to 45 days. That means if you’re shopping around for mortgage quotes, it shouldn’t affect your credit score too much.
A mortgage prequalification will not guarantee approval for a home loan, but it helps you gain a more realistic idea of how much you can afford in housing. Once you receive a lender’s estimate, you can adjust your real estate search accordingly, ensuring you look for homes that fit your budget.
Liberty Mortgage Group is a mortgage lender offering home loan pre-approvals, loans for veterans, home refinance, and other types of mortgage products. Whether you are a first-time homebuyer, investor, self-employed, or have a high net worth, we can provide you with the best financing solution. Contact us today to get started!