Whether you’re renovating or buying a home, a mortgage can make it happen. However, acquiring a loan requires several steps and considerations. Prequalifying can streamline the budgeting process and help you achieve financial goals:
Here’s everything you need to know about prequalifying for home loans, its benefits, and how to get it:
What is Home Loan Prequalification
Home loan prequalification is the first step in the mortgage process. A financial institution or lender will review your financial information to estimate how much you may be able to borrow. You need to provide the following information to a lender:
- Your income.
- Your previous debts.
- Your employment history.
- Your assets, including savings, checking, and investment accounts.
- Your Social Security Number.
- Your planned down payment.
Prequalifying for a home loan largely depends on self-reported financial data and involves running a soft credit check. A mortgage prequalifying is typically valid for several weeks to months. It gives you a comfortable window to look for loans.
Prequalification vs Preapproval: What’s the Difference
If you’re borrowing a home loan for the first time, knowing the difference between prequalification and preapproval can be challenging. Prequalification is a quick process that involves basic financial information. It is performed to gauge your borrowing capacity. Prequalification for a mortgage doesn’t affect your credit score.
In comparison, preapproval involves a hard credit check and a detailed financial audit. The offer made in your preapproval letter closely resembles your approved loan amount. However, it can be subject to change in the later stages of the mortgage process.
Benefits of Mortgage Prequalifying
Here’s why you should avail prequalify for home loan services from a trusted institution:
Clear Budget: Mortgage prequalification provides a clear borrowing estimate and determines your monthly mortgage payments. This will help you manage your expectations and look for houses accordingly.
Less Uncertainty: Having a clear picture of your financial health will reduce uncertainty and simplify the subsequent processes.
Diverse Mortgage Options: During prequalifying, your lender will discuss various mortgage types, such as those offered by the Federal Housing Administration (FHA) or the US Department of Agriculture (USDA).
Quick Evaluation: Prequalifying is incredibly swift. Online services have further accelerated mortgage processes.
How to Get Prequalified for a Home Loan
Now that you’ve understood the benefits of mortgage prequalifying, here’s how you can get started with it today:
Research Potential Lenders: Start by exploring various mortgage lenders, such as banks, credit unions, and lenders. Many lenders offer online services for convenience.
Gather Your Documents: Next, collect the necessary documents, including federal tax returns, W-2 forms, bank statements, and debt documents.
Get Estimates: Once your lender has reviewed all the documents, they will typically provide a general estimate. Keep in mind that prequalification does not guarantee a loan; it gives a general idea of your borrowing power.
Apply for Preapproval: Once you’ve acquired the prequalifying report, ask your lender for preapproval. They will conduct a hard credit check and help you advance in your home loan process.
