Before you start looking at homes, you need to have some idea of what you can afford. You can get an idea of what priced house you can afford by doing some simple calculations on your own. But because of many different factors involved, including your own financial situation and variations in the qualification guidelines for different mortgages, the most easiest and accurate way to determine how large a mortgage you can qualify for is to talk to a lender. So, before you begin your search for a home, it makes sense to speak with several local mortgage companies to check your mortgage power and see whether you can be prequalified. Lenders can also help you decide the kind of mortgage that's best for you.
During the prequalification process a lender analyses your financial situation applying basic underwriting standards (such as housing and debt ratios ) and provides an estimate of how large a mortgage you can afford.
Then lender provides a prequalification letter or certificate indicating the maximum loan for which you would qualify, usually subject to a satisfactory property appraisal and further verification of income, employment and credit history. While it doesn’t obligate the lender to approve your loan, it’s a way to help ensure that you will apply for a mortgage loan within your price range. Some prequalification programs even provide a preliminary evaluation of credit history.
Generally, there is no fee for prequalification.
It is highly recommended that you get prequalified before you begin your search for a
- When you are prequalified you have more negotiating power with the seller and can save thousands of dollars as a result of being in a better negotiating situation.
- Prequalified buyers will be given preference in case of multiple offers.
- Many real estate agents will not begin working with you unless you get prequalified.
- The prequalification can save you much time and trouble by making certain you are looking in the correct price range.
Prequalification through a lender doesn't have to commit you to finance your home through that same lender. Indeed, if anything it's simply a chance for the lending company to market its services.
Today many lenders can prequalify you online. Visit our Mortgage Lender Directory to find such lenders in your state. [Just click the "Pre-qualify Online" button, and you will be taken to the online pre-qualification form.]
When you have been prequalified, ask the lender how long it will take to get your loan approved. It will help you to determine the right closing date you should designate in your purchase agreement.
Pre-Qualification Versus Pre-Approval: Is There A Difference? Today many lenders can pre-approve your mortgage before you've found a home - with rates that are locked in while you shop. Read about the difference between pre-qualification and pre-approval and which makes the most sense for you.
Types of Mortgage Loans Review characteristics of all the basic loan programs available today.