The Right Ways To Get Prequalifed For Mortgage
The final decision about how much mortgage you will receive with lie with the lender. To start looking for properties within the agreed price range, you should look at getting prequalified for your home loan.
Prequalification involves filling in a form or a face-to-face or telephone conversation with your lender. They will then conduct a prescreening process which will give you a good idea of the price range of the properties you should be looking at and could jump-start the mortgage process once you find somewhere suitable. It is important to remember, however, that this prequalification process does not guarantee that you will be approved for a home loan.
What you need to know about prequalification:
The prequalification process is used by mortgage lenders to find out whether or not you are a good candidate for a home loan. This usually involves looking at your ability to pay the mortgage back and from there looking at how much you could borrow. Most mortgage lenders will prequalify you free of charge and there is no obligation to move forward with them with an official home loan application.
Prequalification for a home loan will mean you have to provide certain key information about your personal and financial status. This includes:
- Name, address and contact information
- Where you want to buy a home – the Zip code is usually sufficient
- Details of all your income – includes self-employment and stocks, shares and bonds as well as salary.
- Any existing debts you have.
The lender will take that information and use it to do a credit search. This type of search, known as a ‘soft inquiry’ will have no impact on your credit score.
Once the lender has all the information to hand they will be able to give you an idea of how much you can borrow and how likely you are to be approved for a mortgage loan in the current situation. Always remember that this prequalification does not guarantee that you will be approved for any loan, or the amount that the home buying loan would be.
If it is not legally binding, why get prequalified?
While a prequalification will not guarantee that you get a mortgage, it is a valuable way of informing your search for a home. It means that you can narrow your search within a specific price range and your real estate agent can start to point you in the direction of appropriate properties. It will save a lot of time touring homes that you cannot afford, and will also avoid disappointment when you set your heart on a particular property only to be told you will not qualify for the loan to buy it.
If you find that the prequalification doesn’t match up to your needs you can always take a break from home-buying for a while and work on improving your overall financial position.
What is the difference between Prequalification and Preapproval?
Prequalification lets the lender evaluate your eligibility for a mortgage based on all the information you provide. Preapproval goes one step further; the process is much more involved and looks at all of the factors which can affect your eligibility for a home buyer loan. With a preapproval, the lender takes an in-depth look at your credit history, credit score and looks a documented evidence of income and other financial concerns.
As a result of the processes involved a preapproval is much more accurate than a prequalification report so the lender can be more specific about the price range of the home you could buy. However, because these are more complex it will almost always mean you have to pay the lender an upfront fee for this whereas the prequalification is usually free. The main plus for preapproval is that a preapproval letter is really helpful when you get to the stage of making an offer on a property and increase the seller’s confidence in you as a serious buyer.
steps you should take to get prequalified for a mortgage
Each lender has a slightly different process for prequalification so first, you will need to think about which home loan company or bank you would like to use. The next step is to contact them regarding your prequalification assessment. Some companies provide a form online for customers to complete, others are happy with emails, texts or a telephone call to one of their loan officers. When you contact the financial body concerned to make sure you have all the information to hand that they will need – income, debts and other relevant financial information.
If you supply all the information the lender needs you will normally receive your prequalification letter within days or, with some leaders, a few hours. If you don’t, you should contact them again. The letter should include specific details including your name and the amount of the loan you are expected to qualify for. You can then take the letter to a real estate agent and start to look at properties.
Getting prequalified for a home loan step by step:
- Collect all of your financial information together. This should include all your salary details, any other income from employment, self-employment, stocks, bonds, and so on. Don’t forget to look at your outgoings – the lender will want to know about any existing debts you may have.
- Spend some time researching mortgage lenders and choose 2 or 3 that you feel you would be comfortable working with.
- Complete the prequalification process according to the requirements of the individual lender: This may mean completing a basic form, having a telephone or face-to-face meeting with a loan officer or sending in information via email.
- Once you receive your prequalification letter you can take it to a Realtor and they can use it to inform your property search.
Once you have identified a house you would like to buy you can then look at connecting with lenders to ask for their rates and terms before choosing a mortgage loan. Shop around for your lender; you do not need to use the one that supplied the prequalification letter if you don’t wish to do so. Do a thorough comparison of prices, rates and terms to ensure you choose the best mortgage for your situation.
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