May 21, 2021
What is a prequalification?
As you begin your home-buying journey, you'll find a series of steps to embark upon, but knowing what to focus on first can help you get started. Understanding what you can realistically afford early on is key, and in addition to doing your own calculations, you may also want to know what a lender might conclude you can afford. That's where a prequalification comes in. Simply put, to get prequalified, you are supplying a lender with some basic information about your income and expenses to determine how much home you might be able to afford.
This early grasping of your finances helps you and the lender get a better idea of your purchasing ability. At this point, a prequalification does not validate or verify your credit or income. It's simply a tool to help kick off your home-buying journey on the right foot. Just remember, a prequalification is not an approval or a guarantee that your loan will be approved.
A prequalification letter will generally inform you of the following information:
- How much home you might be able to afford
- What interest rate you are looking at based on your data
- An approximate monthly payment
Why do you need a prequalification?
Because the rest of your home-buying process can take some time, it's best to understand your financial parameters sooner rather than later. Getting prequalified can help you devote your time to looking for houses in your price range. You can also gain a sense of any areas that might need work, such as your credit, before going too far down the homebuying path. With a prequalification, you can take the time to better understand what type of loan might be best for your financial situation. For example, you might learn that you qualify for a VA loan, which could potentially mean no down payment.
How do you get a prequalification letter?
To get a prequalification letter, you can start the conversation here with PenFed to learn more about filling out the basic forms you'll receive from a lender. In terms of a time frame, getting a prequalification letter should be an early step that happens before you start looking for a house.
In some cases, you can expect to get a prequalification letter back quickly, possibly within the same day. Here's a list of some data you'll need to provide to obtain a prequalification letter:
- Income information, including yearly and monthly gross income
- Credit check
- Basic banking account information, such as names and balances
- Potential down payment amount
- Desired amount to borrow with a mortgage
What is the difference between a prequalification and a preapproval?
Although similar, there's a difference between a prequalification and a preapproval.
With a prequalification:
- Outside of a credit check, your financial data won't be verified
- Your lender will provide you with an estimated loan amount you may be able to borrow
With a preapproval:
- Your credit and income will be verified
- Your lender will provide you with an exact loan amount you may be able to borrow
Keep in mind, a preapproval is typically valid for 60-90 days, so make sure to wait until you're ready to actually make a purchase before requesting a preapproval.
Understanding what a prequalification 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.
To learn more or get a PenFed prequalification:
- Call 866-386-7254
- Visit the Mortgage Center