Prequalifying for a mortgage can help you understand your home-buying budget, but it is not a lender commitment or anything you can use to bid on houses. In this article, we’ll discuss what you should know about mortgage pre-qualification.
Understanding Mortgage Pre-qualification
Mortgage pre-qualification indicates that a lender is willing to give you a particular amount of money to help you buy a property. Pre-qualification does not guarantee a mortgage. It only specifies the maximum loan amount you may be eligible for.
A mortgage pre-qualification means that a mortgage lender has gathered some basic financial information about you and, in some instances, done a credit check to estimate how much house you can afford.
It's a simple procedure with facts you probably already know off the top of your head. After receiving a pre-approval loan and your offer on a home has been approved, you will apply for the actual mortgage.
A pre-qualification can help you identify what price range of houses to consider, and there is often no cost or charge involved. When you are serious about purchasing a property, the pre-approval letter gives additional specific assurance that you can close the sale. From the seller's point of view, they want a pre-approval, not a pre-qualification.
Pre-approval usually takes longer than pre-qualification since the lender requires considerably more documentation. A lender will look at your debt, tax records, and various other factors to determine your capacity to repay the loan.
Here’s how a pre-qualification can benefit you:
Setting a Budget
Pre-qualification allows you to limit your field of potential properties. Build your budget around what a lender is prepared to offer. You'll have an upper limit, which will help you avoid looking at high-priced properties that are out of your price range.
Saving on Time
After you've located the property of your dreams, pre-qualification helps you to finish your mortgage more quickly. When you're ready to get situated in your new home, there's no need to fill out paperwork and wait for lenders to complete it. Take care of everything ahead of time, so you have one less duty to worry about while purchasing a property.
Solving Problems Beforehand
You may discover inaccuracies in your credit report or other evidence when obtaining your pre-qualification. Identifying these concerns before purchasing a property will save you time and money.
Does a Pre-Qualification Affect Your Credit Score?
When considering a house purchase, preserving your credit score is critical. Ask the mortgage lender you're dealing with how they structure their mortgage pre-qualification process and whether it includes a credit check.
When comparing mortgage offers, credit checks are generally recorded as one query on your credit report, as long as you apply for pre-qualification (or pre-approval, if the pre-qualification did not pull your report) within a short period, usually 30 to 45 days. So, if you shop around for rate estimates from different lenders — which you should do — the impact on your score should be minimal.
Mortgage pre-qualification is a great way to get a head start on home buying. It can help you determine how much house you can afford, estimate your monthly mortgage payment, and find a lender that best suits your needs.