Which Is Right For Me
First-time homebuyers are more likely to find that getting prequalified is helpful, especially when they are establishing their homebuying budget and want an idea of how much they might be able to borrow.
Preapproval can be extremely valuable when it comes time to make an offer on a house, especially in a competitive market where you might want to stand out among other potential buyers. Again, a seller will be more likely to consider you a serious buyer because you have had your finances and creditworthiness verified.
Ready to prequalify, get preapproved or apply? Get started with the Digital Mortgage Experience.
Does Prequalification Or Preapproval Hurt My Credit Scores
It depends. If the prequalification or preapproval includes a hard inquiry, it may have a minor, negative impact on your credit scores. Before proceeding with a prequalification or preapproval, check with the lender about which sort of credit pull they perform. If they do a soft credit pull, you wont impact your scores.
Youre The Only One Who Can Decide How Much You Can Afford To Spend On A Home
Lenders preapprove you by looking at your income, assets, debts, and credit record. But your financial life is much more complicated than that. Only you can decide how much youre comfortable paying upfront and each month which means only you can decide how much to spend on a home.
- If you were preapproved for more than the home price budget you set for yourself, you can use the preapproval letter to shop for homes without changing your target home price. If youre happy with the amount you planned to spend, stick with your original budget.
- If you were preapproved for less than you were planning to spend on a home, talk with the lender. Ask if there was a particular factor that limited the preapproval amount. You may need to adjust your home price expectations.
- Be upfront with your real estate agent. If you dont want to see homes above a certain price, say so. Limiting your search is a good way to avoid falling in love with a home that costs more than you want to spend.
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What Information Youll Need To Apply For Prequalification
Getting prequalified for a loan is similar to getting approved for a loan. Lenders typically require your personal information and a soft credit inquiry.
For personal information, lenders will usually want to verify the following:
- Income
- Identity
- Current debt obligations
Itll probably also be handy to have your Social Security number, drivers license, proof of income and housing payments.
To check your credit, the lender may use a soft inquiry or a hard inquiry to pull your credit reports and scores. A soft inquiry doesnt affect your credit scores, while a hard inquiry may have a small impact on your credit scores. So if youre shopping around for the best rate, check if youre dealing with a soft or hard inquiry first.
And remember, multiple inquiries made within a 14- to 45-day window often count as only one inquiry, depending on the credit-scoring model, so you can try to get a better rate while minimizing the effect on your credit scores.
What Should I Get Preapproved
In todays housing market, it will be almost impossible to get a seller to consider your offer unless you have a mortgage preapproval . There are simply too many buyers for sellers to be willing to take a chance on one who hasnt at least talked to a lender about getting a mortgage.
Another important reason to get preapproved: It gives you an idea of how much home you can afford based on how much money a lender is prepared to let you borrow. This can save you time during house hunting by eliminating properties out of your price range.
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What Does It Mean To Prequalify For A Home Loan
Mortgage prequalification is an informal evaluation of your creditworthiness and how much home you can afford. Prequalification indicates whether you meet the minimum requirements for a loan and how big that loan may be. Prequalification is an important step for those who arent sure whether theyre financially ready for homeownership.
What Does Preapproved Mean
Preapproval is a much more comprehensive evaluation of your financial standing. The lender will pull your credit report, and youll need to provide proof of income, such as W-2 forms and pay stubs, as well as documentation of other financial assets.
Assuming you meet the lenders eligibility requirements, youll get whats known as a preapproval letter. A mortgage preapproval letter is often good for 90 days. After that, the lender may need to pull your credit report again. The letter should state how much you can borrow, and in many cases, the interest rate you can expect.
Though you may be preapproved for a certain loan amount, be careful about maxing out your budget. Use a reliable calculator to gauge what you can truly afford month-to-month.
If youre looking to buy a home, you can use the preapproval letter to help guide your search. Consider including it in any purchase offers you submit as well. Sellers are often more confident in a bid when they see that a buyer is preapproved. In some cases, it may even help you win out over other buyers.
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How Long Does A Preapproval Last
Many mortgage preapprovals are valid for 90 days, though some lenders will only authorize a 30- or 60-day preapproval. If your preapproval expires, getting it renewed can be as simple as your lender rechecking your credit and finances to make sure there have been no major changes to your situation since you were first preapproved.
The Similarities Of Pre
Mortgage pre-approval and mortgage pre-qualification have the same great benefits for anyone considering purchasing a home with a mortgage:
- Both can help estimate the loan amount that you will likely qualify for. This can help you save time by starting your home search by looking only at homes that you know will fit in your budget. And it will also prevent the frustration of finding out that the house you wanted to buy is actually out of your budget.
- Regardless of whether you have a pre-approval letter or a pre-qualification letter, both can help show sellers that youre a serious contender when submitting your offer. For a seller to confidently accept your offer, theyll want to know that youll be approved for a mortgage and the home sale will close. A pre-approval letter or a pre-qualification letter can help demonstrate that you have a good chance of being approved for a mortgage for the amount that youve offered on the home.
- Many sellers will require a pre-approval or pre-qualification letter if youre planning to get a mortgage. If its not required, a pre-approval letter or pre-qualification letter may help your offer stand out. This can be especially helpful in competitive real estate markets.
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How Long Does It Take To Get Preapproved
Depending on the mortgage lender you work with and whether you qualify, you could get a preapproval in as little as one business day, but it usually takes a few days or even a week to receive and, if you have to undergo an income audit or other verifications, it can take longer than that. In general, if you have your paperwork in order and your credit and finances look good, its possible to get a preapproval quickly.
Not All Preapproved Loan Offers Are The Same But Each Type Can Be Helpful In The Right Situation
The term preapproved loan can be confusing, because it refers to two different types of offers. That said, both types of preapproved loans come with benefits you can take advantage of.
You can apply to get preapproved for certain types of loans, like auto loans and mortgages. Lenders may check your credit and other financial information to determine how much theyre willing to lend you before you even find or start looking for a new house or car. This preapproval generally depends on your credit and finances remaining the same once it comes time to buy. But a preapproval is only a conditional green light that youll qualify for a specific loan it doesnt guarantee final loan approval. Final loan approval is contingent on other conditions and specifics. For example, the lender will likely want to approve the specific car or home youre purchasing before approving the funds.
The other type of preapproval is the preapproved loan offers you receive in the mail for personal loans, auto loans, lines of credit and other types of loans. These mean you have a very good chance of getting approved for those specific offers, but theres no guarantee of being approved. Thats because theyre based on the information the lender has reviewed from your credit reports.
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Is There A Difference Between Prequalification And Preapproval
Both prequalification and preapproval can give you an idea of estimated loan terms and if you might be approved for a loan from the lender. In practice, prequalification typically means the lender will use a soft credit inquiry, while preapproval often indicates a hard inquiry. You should check how the lender uses the term to find out what it means for you. Learn more about the difference between preapproved vs. prequalified.
Two Smart Homebuying Moves: Mortgage Prequalification And Preapproval
Find out how much house you can borrow before you start looking and how you can make the strongest offer possible on the property you choose.
If youre ready to make your dream of owning a home a reality, youve probably already heard that you should consider getting prequalified or preapproved for a mortgage. Its time to understand exactly what each of those terms means and how they might help you. And when youre working toward a goal this big, you want every advantage.
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Preapproved Vs Prequalified: The Bottom Line
Both prequalification and preapproval are important steps in the borrowing or home buying process, but theyre not one and the same. While getting prequalified can give you a rough idea of what your loan options might look like, its not a commitment from a lender by any means. Preapproval will give you a solid idea of what you can afford as a borrower.
What Are The Benefits Of Pre
If you’re looking to purchase a house but you’re not sure how much you can spend, it’s difficult to know where to begin. You might find a property that seems perfect, but have no idea whether it’s a realistic option for your budget.
If a lender pre-approves you for a loan, they will do so for a specific amount, so you can focus your house hunting on the properties you can afford. Which might mean that you have to forget about that beachside mansion with tennis court and pool, but the whole process will be a lot easier. It also means that, if you’re bidding at an auction, you’ll have a maximum bid in mind.
For example, you may be looking at two different properties: one valued at $550,000 and one valued at $700,000. If you’re pre-approved for a home loan of $550,000, the more expensive house may be outside your budget, unless you contribute more of your own funds.
Pre-approval can also make you a more attractive buyer to a potential seller, as it indicates that you’re serious about purchasing the property and that your offer is less likely to be withdrawn due to a lack of financing.
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Other Ways To Boost Approval Odds
You could also look into getting a secured personal loan, which requires you to pledge collateral like your car or savings account to guarantee the loan. Its usually easier to get approved for a secured loan, but you could lose the collateral if you fail to make payments.
Some lenders offer joint loans or co-signed loans. Both options allow you to add someone with stronger credit to your application, increasing your chances of approval, but that person is on the hook for any missed payments.
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Which One Should You Get
If you want the most accurate depiction of what you can qualify for, or youre about to start searching for a property, a mortgage pre-approval letter is going to be your best bet.
Since pre-approvals require documentation, theyre typically a better indicator of whether youll qualify for a home loan or not. For this reason, a pre-approval letter usually holds more weight than a pre-qualification letter does, at least with sellers.
Its true: Getting pre-approved could actually help you stand out from other buyers. If faced with multiple offers, sellers will often choose a pre-approved buyer over other options on the table, as it indicates theyre more likely to be approved for financing .
A pre-qualification is usually only worthwhile if youre far out from the home search and are just getting an idea of what mortgage options you may have.
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Shop Around For A Great Pre
Just as youll see several homes before settling on the one, you should shop around for the best mortgage rate. Dont just go to your local bank branch and expect to receive a great deal. Do your research and compare mortgage rates, or use a mortgage broker who will negotiate on your behalf.
Even half a percentage point can make a huge difference in your regular payments and the amount of interest youll pay over time. To see what we mean, plug in your numbers into our mortgage payment calculator, then change the interest rate in small steps. Youll very quickly see what we mean!
What happens after your mortgage pre-approval? Generally, youll have a 90 to 120 day period where your offered rate will be held for you. This is when you should start house hunting!
What Does It Mean To Be Pre
Being pre-qualified means a lender has decided you will likely be approved for a loan up to a certain amount, based on your current financial situation.
To get pre-qualified, you simply tell a lender your level of income, assets, and debt. The lender will then take that unverified information and determine how much you will likely be approved for. There are no guarantees you will actually be approved for the same amount.
Benefits
- Helps you know exactly what you can afford
- Allows you to close faster
Something to keep in mind is that being pre-approved doesnt guarantee you a loan. You still have to complete the application, go through the underwriting process, and wait for final approval. But being pre-approved indicates your intent to purchase, so sellers look fondly upon buyers with pre-approval letters.
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What It Means To Pre
When you pre-qualify for a home loan, the lender will review your income to give you a general idea how much you are able to borrow. But “general” is the key word here. Mortgage prequalification is not a commitment to lend. Nor does it guarantee you will actually receive that amount from the lender. It’s just a way to get the ball rolling — a way to open up the dialogue between you and the mortgage lender.
In most cases, prequalification paves the way to the next step in the process, which is pre-approval. The difference between these two terms has to do with the level of scrutiny involved:
- Mortgage Prequalification is when the bank / lender performs a very basic review of your financial situation, in order to tell you how much of a home loan you can get. You can think of it as a free consultation between you and the loan officer.
- Mortgage Pre-approval is a more in-depth version of this process. Here, the lender actually verifies your income, your debt level, and other aspects of your financial situation. They’ll also check your credit score to see where you stand in that department. They do this to determine two things: whether or not you are qualified for a home loan, and how much of a loan they are willing to give you. Learn more
Get A Prequalification Or Preapproval Letter
A prequalification or preapproval letter is a document from a lender stating that the lender is tentatively willing to lend to you, up to a certain loan amount.
This document is based on certain assumptions and it is not a guaranteed loan offer. But, it lets the seller know that you are likely to be able to get financing. Sellers frequently require a prequalification or preapproval letter before accepting your offer on a house.
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What Does Mortgage Prequalification Mean To Me As A Borrower
By Brandon Cornett | © 2021, all rights reserved | Copyright policy
If you’ve been researching the home buying process for any length of time, you’ve probably encountered the terms pre-qualify and prequalification. These terms are often used in relation to mortgage loans. For instance, a lender’s website might invite you to “Click here to pre-qualify for a home loan.” They’ll explain how easy the process is, and that it only takes minutes. This is usually followed by a web-based form that requests information about you.
But what is mortgage prequalification exactly, and how does it help you when buying a home? What are the steps involved in the process? And is it even worth the time? These are some of the questions we will address in this mortgage tutorial.
