Whether looking to buy a first home, secondary home, or even investment property, you will need to secure financing. Obviously, this entails finding a reputable lender but also the lowest interest rates and best terms available. However, rather than apply for a loan and then start searching for the right property, the process can be simplified if you prequalify for mortgage.
Preapproval versus Prequalification
There are actually two viable options that will help streamline the mortgage loan process. The first is becoming preapproved and the second is being prequalified. Keep in mind that being preapproved is considered the best choice, but there are also benefits if you choose to prequalify for mortgage loans. To understand the differences in the two options, we provided a brief introduction to each.
- Preapproval – With this, you are actually approved for a mortgage loan prior to looking at property. The money is held until a home is chosen, at which time appropriate funds are released. Of course, you would use only the amount of preapproved money needed. Because financing is taken care of, you have far more negotiation power with sellers.
- Prequalification – When you prequalify, you go through a similar process of becoming preapproved, except for the fact that money has not yet been funded to a loan. In this case, the lender has checked your financial situation and determined that you will have no trouble getting approved for an actual loan. Even in this situation, there is strong negotiation power, which is obviously to your benefit.
Introduction to Prequalification
If you decide to pre-qualify for mortgage, there are some additional factors that should be understood in addition to the basics outlined above. In truth, this is one of the smartest decisions you can make when buying any real estate. With this, you have a clear idea of what type of home you can afford, what the monthly payments will be, and the amount of taxes you’ll be responsible for.
Prequalification helps establish expectations and keeps you focused on properties that can actually be afforded. Some of the important things to consider before you prequalify for mortgage have been provided below.
- If you have excellent credit, a lender will probably prequalify the loan amount for more than you are comfortable borrowing.
- Because of this, it is essential that you create a working budget. That way, you will know the exact amount of money you want to lock in before meeting with a lender.
- Once you are prequalified, there is no obligation to share this information with your realtor. However, this means you will need to provide the real estate agent with a price range so appropriate homes can be shown.
- The amount you prequalify for will be based on verbal information provided to the lender. For instance, you will share information pertaining to your income, assets, and debt. Based on this process, many lenders provide information or prequalification online. Of course, if you provide documentation that differs from the information you provided verbally, you might not prequalify or you could prequalify for a lesser or greater amount.
As stated, when you prequalify for mortgage, you are in a much stronger position to negotiate selling price with the homeowner. However, there are a number of other primary benefits, such as the following:
- You will gain a realistic view of what the loan structure will look like to include terms, interest rate, and monthly payments.
- The level of stress associated with buying property is greatly reduced since you are confident in knowing that the financing aspect is taken care of.
- As a prequalified borrower, you have the ability to zero in on homes within a set price range.
- As part of the process, the lender will go over every detail. Because you are under no obligation to accept, you can always walk away if there is something about the proposed loan you do not like or feel comfortable with.
As stated, there are more benefits associated with preapproval compared to prequalification, but even if you choose to prequalify for mortgage, you have tremendous advantages for buying property. Just remember that you want to get quotes from several lenders, which can be simplified by choosing your state, type of loan, and credit profile from the form below. In exchange, information will be provided from many of the top lenders around the country.