How Does Mortgage Prequalification Work
A mortgage prequalification can be a good initial step when you’re looking to buy a home. The process varies by lender, but you should expect to be asked for some basic information about your financial situation. For example, a lender might want to know about your income, your monthly bills, how much you’ve saved for a down payment and how much you want to borrow.
Some lenders may also assess your credit with a soft inquirya type of credit check that doesn’t impact credit scoresor ask for your estimated credit score range. You can get a free FICO® Score 8 from Experian to use as an approximation, although mortgage lenders tend to use older FICO® Score models.
Understanding your finances and credit helps a lender determine the loan amount you can afford to pay back and the risk you present as a borrower. Based on the information they see, the lender can prequalify you for different types of mortgages and an estimated loan amount. You may also receive a prequalification letter, which you can share with home sellers and real estate agents to show that you’ll likely be able to buy a home.
Get Information From A Source You Trust
It’s natural to have questions. Besides the basics such as the interest rate and term, it’s a good idea to ask about other things like prepayment charges if you plan to sell your property or pay down your mortgage loan faster. To ensure that you get accurate, actionable information we recommend seeking answers from a trusted source. TD Mortgage Advisors are well versed in every aspect of the mortgage process and can be an easily accessible source of information.
Do I Have To Spend How Much Im Pre
No. Keep in mind that you don’t have to shop at the top of your price range. Depending on the market, you might be able to get into a home you like for less money than youre approved for, leaving you with extra cash each month to set aside for retirement, kids college funds, or checking something off your bucket list.
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Different Lenders May Request Different Levels Of Information And Documentation
Some lenders base preapproval letters solely on the information you provide. Other lenders dig into the details with you now to make certain you have all the documentation you need and prevent delays and surprises later. Ask questions. All lenders will require documentation at some point if you decide to apply for a loan. Its better to know now that you need an additional document than when youre about to close.
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.
Ready to prequalify or apply? Get started
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How The Mortgage Preapproval Process Works
There are five basic steps in the mortgage preapproval process.
How A Mortgage Preapproval Affects Your Credit
The credit check required for a mortgage preapproval is identical to the one performed when you apply for a mortgage. This check is considered a hard inquiry on your credit report, which can temporarily lower your credit score a few points.
If you fill out several applications in the process of shopping for a new loan, credit scoring systems treat the credit checks related to those applications as a single event, as long as you make them within a few weeks of each other. Note that the various FICO® Score models will combine inquiries made within the same 45-day period and treat them as one event the VantageScore® system uses a rolling two-week window that resets each time you make a similar loan application within two weeks of the one that preceded it.
This allows you to shop around for the best possible terms without worrying that each credit inquiry will harm your ability to qualify for a new loan.
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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.
So What Do These Letters Of Pre
Lets say you find the perfect house. Your real estate agent puts together an offer to buy packet your offer price and contract, and financial information to show youre capable of buying including your letter of pre-qualification or pre-approval for a loan.
And, lets say the seller has some things he or she is looking for in addition to the right price a quick sale and a quick move. When the seller reviews the offers, a buyer pre-approved for a loan equals someone who can close on the purchase in as little as 14 days, according to Blonder. All thats left for the lending institution to do is conduct a home appraisal and make sure theres a cleantitle of ownership.
On the other hand, a buyer pre-qualified for a mortgage is going to close in the typical 30-60 days, if he can actually get a mortgage for the price hes offered, because he still has to go through the loan process that the pre-approved guy went through!
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Getting The Most From Your Pre
Beyond qualifying for a larger mortgage, there are other ways to make homeownership more affordable.
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Be flexible about your location: It simply costs more to buy in some areas than in others. If youre willing to compromise on some items on your neighborhood wish list, you may open up new options for affordable homes.
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Renovate a home thats less than perfect: While its not for everybody, the fixer-upper route can be a solid choice for borrowers struggling to afford a move-in-ready home in their desired area. There are even loan options available for borrowers to roll renovation costs into their mortgage, like Freddie Macs CHOICERenovation loan.
You can also improve affordability by exploring loans with low- or no-down-payment requirements. This means you can hold on to more of your savings, which can come in handy for the unexpected costs of homeownership.
What To Bring To Your In
We want you to be ready for the pre-approval process and being prepared will help. For your meeting, you should plan to bring the following:
- Current address
- Previous address
- Current employment information
- Previous employment information
- If self-employed, the last 2 years Notice of Assessments from your Income Tax return
- Value of properties, automobiles, investments, and savings
- Most recent statements for mortgages, loans and lines of credit
- Most recent credit card statements
- Estimated value of your home
- Housing expenses
- Financial information for your co-borrower, if applicable
- Social Insurance Number
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What If You Don’t Get Pre
After reviewing a mortgage application, a lender will provide a decision to pre-approve, deny, or pre-approve with conditions. These conditions may require the borrower to provide extra documentation or reduce existing debt to meet the lending guidelines. If denied, the lender should explain and offer options to improve a borrower’s chances for pre-approval.
Getting Prequalified Is A Simple Way To Ease Into The Process
If youre curious how much you may qualify to borrow, getting prequalified can be a valuable step in the home-buying process. Its quick and easy to do, and depending on the type of prequalification, may not affect your credit report. Youll need to provide some basic financial information, such as debt, income and assets. With this knowledge youll be able to answer: How much house can I afford? Or crunch your own numbers to estimate your monthly payment, affordability and more.
Lets get you closer to your new home.
Prequalification helps you see how much you might be able to borrow.
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Why Is It Important To Get Pre
Getting pre-approved for a mortgage gives a home buyer bargaining power since they already have mortgage financing and can therefore make a reasonable offer to the seller of a home in which they are interested. Otherwise, the prospective buyer would have to apply for a mortgage before making an offer and potentially lose the opportunity to bid on a home.
You Could Be In A Stronger Position
A prequalification can put you in a better negotiating position with the seller, points out Peter Boomer, a mortgage executive at PNC Bank although these days, a preapproval holds much more weight.
Still, being prequalified can help let the seller know you mean business, Carrasco says.
Its not uncommon in this market for sellers and their Realtors to insist on seeing a prequalification letter prior to even letting you see the home, Carrasco says. In a hot market, sellers dont care to waste their time preparing their home for a showing and leaving only to have a tire kicker traipse through their house with no means or intentions of buying it.
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How Long Does It Take To Get Preapproved
As long as you have all the proper paperwork available when you apply with your lender, you may be able to get the preapproval the same day. But remember, everyones finances are different.
Depending on things like your debt, credit score and other financial hitches, getting preapproved for a mortgage could take longer. Your best bet is to get in touch with your lender before meeting and make sure you have all the necessary paperwork theyll use.
Understanding how a mortgage preapproval plays a role in the home-buying process can mean the difference between getting the house you want or giving it up to someone who was more prepared! Once youre ready to seriously begin searching for a home, do your homework on finding a lender and get your preapproval letter in hand.
The Buyers Credit Score Dropped Below The Minimum
Mortgage pre-approvals are test runs for a buyers actual mortgage approval. So, if the buyers credit score drops before finding a home, the buyers pre-approval may be invalidated.
In general, the minimum credit score requirements are:
- FHA: 500 credit score
Learn more about how to fix your credit score to buy a home.
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What It Means To Be Prequalified
First, a prequalification is generally less strenuous. Youll obtain a prequalification by filling out a quick information form with a potential lender.
In fact, a prequalification can sometimes be less accurate than a preapproval if you dont fill out your general information accurately. At this point, there is no loan officer at this point to verify your information with paperwork or a credit check.
With that, you should take a mortgage prequalification with a grain of salt. The lender is not promising to lend you that amount of money but based on the information youve submitted that is what they would likely be willing to lend you. But you wont know the exact terms of the loan offer with a prequalification.
My Preapproval Letter Has Expired What Now
Letter expired? Ask for another. You may need to provide more recent documents. And your lender will probably check your credit again.
But, providing nothings changed, a renewal shouldnt be a problem. And it should be as quick and easy as your original request.
Just one thought: Some lenders charge for preapprovals. It shouldnt be much. But it may incentivize you to apply only when you need to.
But not all lenders levy a fee. So you may prefer to use one that doesnt. That alone would be a bad reason for picking a mortgage lender.
But youre not picking one at this point. Youre entirely free to show an approval letter from one and later get your mortgage from another.
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Your Mortgage Preapproval Checklist
To get preapproved for a mortgage, youll need a few documents detailing your income, assets and debt obligations. This helps banks and other mortgagees determine exactly how much theyre willing to lend you. Getting mortgage preapproval also helps you understand how much house you can afford, so you wont get your heart set on a home outside your budget. Well walk you through this checklist. We can also assist you with finding a financial advisor who can guide you through the entire home-buying process.
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Check Your Mortgage Eligibility
Before you can get serious about buying a home, you need to know whether youll qualify for financing and how much you can borrow.
Mortgage prequalification will help you look for homes in your price range. And, when the time comes, your preapproval letter will give you the power to make a competitive offer on your dream home.
If youre ready to buy, dont wait on getting preapproved. Make sure youre eligible and check your loan options and interest rates. You can start the process online in just a few minutes.
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A Step Further: Getting Preapproved
As noted above, a preapproval is a more formal step than to prequalify for a mortgage. You need to fill out a mortgage application, allow the lender to pull your credit score and provide documentation of your income and other finances.
A mortgage preapproval allows a lender to make a determination as to whether you can be approved for a mortgage or not. Once youre preapproved, the lender will give you a letter that you can show to home sellers when making an offer, as evidence of your ability to obtain a mortgage.
Getting preapproved for a home loan does not guarantee youll be approved for the mortgage you could still be turned down if the home you chose does not appraise for an adequate value or if problems are discovered with your application during the underwriting process.
Though they arent mandatory, both mortgage prequalifying and preapproval are important steps in qualifying for a mortgage and buying a home. Both should be part of your plans for buying a home.
What To Provide To Your Lender Or Mortgage Broker
Before preapproving you, a lender or mortgage broker will look at:
Youll need to provide the following:
- proof you can pay for the down payment and closing costs
- information about your other assets, such as a car, cottage or boat
- information about your debts or financial obligations
For proof of employment, you may have to provide:
- a proof of your current salary or hourly pay rate (for example, a recent pay stub
- your position and length of time with the employer
- notices of assessment from the Canada Revenue Agency for the past 2 years, if youre self-employed
Your lender or mortgage broker may ask you to provide recent financial statements from bank accounts or investments. This will help them determine if you have the down payment.
Your debts or financial obligations may include your monthly payments for:
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