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.
- 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.
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