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MORTGAGE KNOWLEDGE CENTER

PenFed Mortgage with Confidence

Home Buying Steps

  • Getting Started
  • Finding a Home
  • Getting a Mortgage
  • Home Ownership

Mortgage Topics

  • VA Loans
  • Conventional Loans
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CONVENTIONAL LOANS

Rates starting at % (APR %)¹

 

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

  1. Home
  2. Mortgage Knowledge Center
  3. What Is a Pre-qualification?

MORTGAGE

What Is a Pre-qualification? Pre-qualification vs. Preapproval

What You'll Learn: What is a pre-qualification letter; pre-qualified vs. preapproved for a mortgage

EXPECTED READ TIME: 4 MINUTES

July 13, 2023

What is a prequalification?

Early on in your homebuying journey, you may hear about getting pre-qualified for a mortgage. While it’s not always necessary, pre-qualification for a mortgage can help you establish a relationship with a lender and get a better idea of how much home you can realistically afford.

In this article, we’ll explore some frequently asked questions surrounding this topic including: What is a mortgage pre-qualification letter? Can you pre-qualify for a mortgage without affecting credit? What's the difference between a pre-qualification and a preapproval for a mortgage?

What does it mean to get pre-qualified for a mortgage?

Getting pre-qualified is one of the first steps in the home buying process. After you’ve done some work on your own – thinking through your housing wants and needs, checking your credit score, and running estimates in a mortgage affordability calculator – it’s time to get an outside perspective.

Think of pre-qualification as a foot in the door with a potential lender. You’ll supply some basic information about your income and expenses, and they’ll provide an estimate of how much you might be able to borrow.

Pre-qualification provides:

  •  An initial ballpark of your purchasing ability, allowing you to begin looking at houses in your price range
  • An opportunity to work on areas that may need improving, such as your credit
  • A chance to get to know a lender and the types of loans that may be best for you

For example: During pre-qualification you learn that you qualify for a VA loan, which could potentially mean no down payment. This could speed up your homebuying timeline significantly.

 Pre-qualification does not provide:

  • Approval or guarantee that a loan will be approved

What is a pre-qualification letter?

A mortgage pre-qualification letter is a document from a lender stating they will likely lend money to you up to a certain amount. It may specify that it is for informational purposes only and is based on financial details and conversations that have not been verified.

Is a pre-qualification letter enough to make an offer?

A pre-qualification letter is a great starting place. But when it comes time to make an offer, most real estate agents and sellers will require a higher level of documentation: a preapproval letter.

What is the difference between pre-qualified and preapproved?

It’s easy to mix these terms up because they look so similar. Many lenders make clear distinctions between mortgage pre-qualification vs. preapproval.

With a pre-qualification:

  • Outside of a soft credit check, your financial data won't be verified
  • Your lender will provide an estimated loan amount you may be able to borrow

With a preapproval:

  • Your credit and income will be verified
  • Your lender will provide an exact loan amount you may be able to borrow

While a preapproval brings you one step closer, neither option provides approval or guarantee for the loan.

Does mortgage pre-qualification affect your credit score?

As mentioned, most lenders request a soft credit check during pre-qualification. A soft credit check, or soft inquiry, provides a view of your credit report without being linked to an application for credit. Unlike a hard inquiry, it does not affect your credit score.

Do lenders pull credit after pre-qualification?

The soft credit check as part of pre-qualification provides an initial view of your credit history. If you move forward with preapproval, and eventually a loan application, your credit will be pulled again – this time as a hard inquiry.

How long does the pre-qualification process take?

Sometimes you can expect to get a pre-qualification letter back quickly, possibly within the same day. This can depend on the complexity of your situation and your lender’s workload.

Does pre-qualified mean you will get the loan?

Pre-qualification provides an estimated amount you may be able to borrow. It’s a good sign, but remember, it’s based on data that a lender has not yet verified. Pre-qualification is not a guaranteed loan offer.

How long does pre-qualification last?

Unlike a preapproval, which is typically only valid for 60 to 90 days, a pre-qualification doesn’t typically have an expiration. It’s best used as a preliminary step to estimate your buying power until you’re ready to request a preapproval.

Ready? How to get pre-qualified for a home loan

If you’re early in your home buying journey, now is the perfect time to get pre-qualified.

To be pre-qualified for a mortgage you'll likely need to provide:

  • Income information, including yearly and monthly gross income
  • Basic banking account information, such as names and balances
  • Potential down payment amount
  • Desired amount to borrow with a mortgage

Understanding what a pre-qualification is, what's involved in the process, and what the potential benefits are can help you prepare to take those first steps toward buying the right home for you.

Are you a first-time homebuyer? Go from curious to closing with our free eBook download.

For more information about PenFed Mortgages:
 

PenFed Mortgage: 

800-970-7766

Get Started

SIMILAR ARTICLES

What Is Preapproval?

A preapproval is a key part of starting your homebuying process. PenFed Credit Union explains what a preapproval is, why you need one, and how to get it.

couple calculating a budget together

Soft Credit Check vs. Hard Credit Check: What’s the Difference?

Understanding the differences between soft and hard credit checks can help you better manage your finances.

man researching homebuying on laptop

Will a Prequalification or Preapproval Affect Your Credit Score?

Find out - What is prequalification vs. preapproval? How will a credit check affect your credit score? Will a prequalification help you when you put an offer in on a home?

couple looking at a house on a laptop

Home Buying Process Step-by-Step

In home buying, it's important to understand everything that's involved. Follow PenFed Credit Union's step-by-step process before you step into your new home.

Loan agreement with house keys
image

CONVENTIONAL LOANS

Rates starting at % (APR %)¹

 

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

Home Buying Steps

  • Getting Started
  • Finding a Home
  • Getting a Mortgage
  • Home Ownership

Mortgage Topics

  • VA Loans
  • Conventional Loans
  • First Time Homebuyer
  • Home Equity
  • Homebuying 101
  • Checklists
  • Adjustable Rate Mortgages
  • PenFed Top 10
  • Refinance
  • Jumbo Loans
  • FHA
  • Videos

Mortgage Products

  • Mortgage Center
  • Refinancing
  • Home Equity

PenFed HELOC

Rates as Low as % APR* with flexible use of funds

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

Disclosures

1Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on discount point, which equals percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 75%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.

*Prime Rate is % as of . The APR for this Home Equity Line of Credit (HELOC) is based on prime plus a margin and can change monthly. Fixed Rate Advances will be amortized over the Fixed Rate Advance Term, with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin, and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than % for primary residences and second homes.

  • Annual Fee: Notwithstanding the foregoing, an annual fee of $99 will be assessed on each account anniversary.
  • Home equity lines of credit (HELOC) are variable rate loans and the interest rate is subject to increase after consummation of the loan on monthly basis. Closing costs range between $500 and $8,500 for credit lines of $500,000. Contact a representative for additional details.

Appraisals: PenFed will attempt to establish value via an independent method. If that method is unsuccessful, or the value is not sufficient for the amount requested, an appraisal will be required regardless of CLTV. An appraisal is always required in the following circumstances:

For all loans with a loan amount greater than $400,000.

If an appraisal is required, it must be ordered by PenFed. You will be contacted for authorization and payment prior to ordering. Appraisal fees average $550 to $850 (some run higher).

  • Closing Cost Credit: PenFed will pay most closing costs associated with a home equity line of credit (HELOC), which includes credit report, flood certification, settlement/closing, property ownership and encumbrances search, recording, property search, and quick close. Member is responsible for any city, county, and/or state taxes if the subject property is located in FL, LA, MD, MN, NY, TN, or VA. If an appraisal is required, the member, who is responsible for the fee whether or not the loan closes, will pay the cost.

Interest may be tax deductible, consult a tax advisor for further information regarding the tax deductibility of interest and charges.

Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Draw Period. During your Draw Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.

Fixed Rate Advances will be amortized over the Fixed Rate Advance Term with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than % for primary residences and second homes and 4.75% for investment properties.

Property Insurance: Property insurance is required.

Multiple PenFed Loans: Multiple PenFed Equity loans and HELOCs are available as long as the member and collateral qualify (except Texas). For Equity loans and HELOCs the total indebtedness cannot exceed $500,000 for all PenFed Equity and HELOCs combined.

PenFed does not lend on:

  • Mobile homes
  • Co-ops or time-shares
  • Properties that are currently listed on the market for sale
  • Commercial property or property used for commercial purposes, even if a residence is part of the property
  • Undeveloped property (land only)
  • Properties with more than 4 units

Properties that are currently under major construction/renovations: Property must be fully livable, with no safety issues. (Examples: no missing rails from stairs/decks, no open walls with wires showing, missing kitchen appliances/counters, missing bath fixtures or unfinished pool).

  • Additional limitations may apply

Home Equity Line of Credit:

  • This Account has a Draw Period of 10 years, followed by a repayment period of 20 years.
  • If only minimum payments are made during the draw period, the loan balance will not decrease.
  • In Texas, the maximum CLTV available is 80% on owner occupied properties. Additional restrictions apply in Texas, so please ask a representative for details.
  • In all other states, the maximum CLTV is 85% on owner occupied properties and second homes. Additional restrictions or requirements may apply based on application characteristics.
  • Property type of Condo has a maximum CLTV of 80%.
  • The maximum CLTV available is dependent on credit qualification.
  • Rates vary depending on owner occupancy and CLTV and other loan criteria.

Minimum Loan Amount Requirements in all States:

  • For an owner occupied property or second home the minimum loan amount is $25,000 and the maximum amount is $500,000 with a CLTV of 85% or less of the fair market value.

Other terms and conditions apply; call 844-918-4307 to speak with a representative for details. All rates and offers are subject to change without notice. To receive advertised product, you must become a member of PenFed.

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This credit union is federally insured by the National Credit Union Administration. Rates are current as of September 2023 unless otherwise noted and are subject to change.

APY = Annual Percentage Yield
APR = Annual Percentage Rate


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You are leaving PenFed.org and entering a third party Website that is not a part of Pentagon Federal Credit Union.


The content you are about to view is produced by a third party unaffiliated to Pentagon Federal Credit Union. PenFed takes no responsibility for the content of the page.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party site. PenFed Realty, LLC is wholly owned by PenFed and this referral may provide PenFed a financial or other benefit.


For more information about the relationship between PenFed and PenFed Realty, LLC, see the Affiliate Business Arrangement Disclosure.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party Website.


The content you are about to view is produced by a third party website that is unaffiliated to Pentagon Federal Credit Union. PenFed takes no responsibility for the content of the page.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party site. PenFed Title, LLC is wholly owned by PenFed and this referral may provide PenFed a financial or other benefit.


For more information about the relationship between PenFed and PenFed Title, LLC, see the Affiliate Business Arrangement Disclosure.


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