Prequalified Mortgage

Why You Should Get Prequalified for a Mortgage

How does qualifying for a mortgage work?

Mortgage prequalification is the first step in determining how much money a potential homebuyer can spend on a new house. During the process, a financial institution will review an applicant’s pertinent financial information. This includes credit, income and assets, and issue a prequalification letter. This document states that the lender is tentatively agreeing to loan the homebuyer a certain amount of money to purchase the property. It is not a guarantee.

The benefits of being prequalified are twofold because it provides a ballpark budget and ensures sellers that a buyer will likely be able to secure financing. Some sellers require a prequalification letter before even showing a property.

What are the different types of mortgage prequalification?

All prequalification letters are not created equal. Some just tell the loan officer how much money the potential homebuyer makes and how much they are looking to put down.

Next step

The next step up is providing the loan officer with documentation of income and assets. A soft credit inquiry is then pulled. The soft inquiry is often free and will not impact your credit score. The credit pull can’t be used to underwrite the loan. However, with these elements in tow, the loan officer can provide a prequalification letter that has some value to it.

If there are legitimate concerns about qualifying for a home loan, the borrower should consider a prequalification letter with a hard credit pull. This will affect the borrower’s credit score. However, it’s the same type of report that will be pulled when they are ready for the loan to be underwritten. The same type of documentation will be collected for income and asset verification, and the prequalification letter will carry a lot of weight.