What is a mortgage preapproval or prequalification?
Be prepared to make an offer! Don't let the home you love slip away!
This should be among the first steps you take once you get serious about buying a home. This will be needed when the time comes to make an offer on a home. In some cases, home sellers will require that you have this in order to even view their home. It shows sellers that you are a serious & qualified buyer with the buying power to purchase their home. It can also give you an advantage over other buyers if they have not done the same.
Often the terms pre-qualified and pre-approved or used interchangeably, but there are important differences that homebuyers should understand.
A mortgage prequalification is a simple process and most of the time it only takes a few minutes. You will provide your lender with some financial history including credit, income, job history, debt, and assets. This will be reviewed and you will receive a letter providing an estimate of how much you can expect to borrow (a maximum amount), and the loan program in which you intend to use. This is not necessarily a sure thing as it's based solely on the information you hand over to the lender, so it doesn’t mean much at all if you don’t provide accurate data. Prequalification does not carry as much weight as a preapproval does.
A mortgage preapproval is much more involved. While a prequalification is a good indication of your creditworthiness, a preapproval is definite. You must complete a mortgage application, and supply all documentation to your lender so they can perform an extensive check on your credit, income, job / employment, and asset information. Your preapproval will also indicate what interest rate you can expect (since this is often based on your credit score), and an accurate loan amount instead of an estimate. You may even be able to lock in an interest rate! This will obviously give you an advantage with a seller over someone with a simple pre-qual letter because you are showing that you are more prepared… one step closer to getting the actual mortgage. You will also be able to compete better on an offer by tightening up terms and having a quicker closing date.
The best time is just before you start shopping for homes. You’ll know what price range to shop in, and you will be prepared to make an offer. You never know when the perfect home will be there for you! It may be the first home you look at!
Most home buyers only consider one lender when shopping for a home, but it may be in your best interest to shop more than one. Do as much research as possible before committing to one lender. Most lenders vary in one way or another. Also, compare each loan program as well. What will your closing costs be? Examples: interest rate, origination fee, appraisal fee, credit report fee, document preparation fee, private mortgage insurance, and any junk fees. Not all lenders offer the same programs. You will see differences between banks and credit unions as well. There are many different mortgage products. For example, one lender may offer FHA financing, but a credit union may not be able to offer you that product. Some lenders do not offer VA loans or USDA loans, etc. Ask your real estate professional for help. They can provide you will lender recommendations and give you an overview of mortgage products that may be available.
When a lender pulls your credit report, it will count as a “hard inquiry”. Multiple hard inquiries as a result of shopping for a home loan / mortgage generally do not hurt your credit score. FICO, one of the largest credit scoring companies, recommends confining rate shopping to a period of about 30 days.
This will vary by lender, but a pre-qualification or pre-approval letter is good for 90 days. There is usually an expiration date on the letter. You can get this renewed at any time. You may be asked to update any documentation and the lender will run your credit again.
We're always here to help home buyers in any way we can. If you would like to discuss the home buying process, or be put in touch with a mortgage professional, please contact us below. Just answer a few questions, send the form, and someone will be in touch with you quickly.