Prequalification
Many mortgage lenders are happy to give you an initial estimate of how much money they will lend to you for a home purchase and a letter that documents that amount.
This is a great first step in your financing process and can help you feel a lot more confident when you start talking to agents and looking at properties.
- Ballpark Estimate: prequalification is generally a very broad estimate, often stated as a range, based on your reported income and major debts.
- Online or Over the Phone: often you can get prequalified by calling a lender and asking for a prequalification letter, by going to the lender’s website. They will ask you a few questions about your monthly income and payments and then tell you the amount you might qualify to borrow (and send the letter that puts it in writing).
- A Good Start: It’s an easy and quick first step in your mortgage process. By prequalifying, you have shown that you are a serious homebuyer who has already started the process of getting a loan, but keep in mind that it is only an estimate on the lender’s part, not a commitment to lend.
- Limited Value: because it is based only on your estimate of your income and debts and doesn’t take either your credit history or the value of the property you would buy into consideration, it has limited value.
Many lenders no longer see prequalifications as an important source of customers and will encourage you to go straight to preapproval.
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