Kiah Treece is a small business owner and personal finance expert with experience in loans, business and personal finance, insurance and real estate. Her focus is on demystifying debt to help individuals and business owners take control of their fina.
Kiah Treece Loans WriterKiah Treece is a small business owner and personal finance expert with experience in loans, business and personal finance, insurance and real estate. Her focus is on demystifying debt to help individuals and business owners take control of their fina.
Written By Kiah Treece Loans WriterKiah Treece is a small business owner and personal finance expert with experience in loans, business and personal finance, insurance and real estate. Her focus is on demystifying debt to help individuals and business owners take control of their fina.
Kiah Treece Loans WriterKiah Treece is a small business owner and personal finance expert with experience in loans, business and personal finance, insurance and real estate. Her focus is on demystifying debt to help individuals and business owners take control of their fina.
Loans Writer Rachel Witkowski Correspondent/EditorRachel Witkowski is an award-winning journalist whose 20-year career spans a wide range of topics in finance, government regulation and congressional reporting. Ms. Witkowski has spent the last decade in Washington, D.C., reporting for publications i.
Rachel Witkowski Correspondent/EditorRachel Witkowski is an award-winning journalist whose 20-year career spans a wide range of topics in finance, government regulation and congressional reporting. Ms. Witkowski has spent the last decade in Washington, D.C., reporting for publications i.
Rachel Witkowski Correspondent/EditorRachel Witkowski is an award-winning journalist whose 20-year career spans a wide range of topics in finance, government regulation and congressional reporting. Ms. Witkowski has spent the last decade in Washington, D.C., reporting for publications i.
Rachel Witkowski Correspondent/EditorRachel Witkowski is an award-winning journalist whose 20-year career spans a wide range of topics in finance, government regulation and congressional reporting. Ms. Witkowski has spent the last decade in Washington, D.C., reporting for publications i.
Updated: Dec 15, 2020, 9:53am
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If you’re just starting your new home search, mortgage prequalification can help you better understand available mortgage options and how much house you can afford. Receiving a lender’s prequalification nod isn’t a guaranteed loan offer, but the process is straightforward and usually can be completed in just a few minutes online.
When you’re about ready to make an offer on a home, you may want to consider mortgage preapproval, which is a step closer to a loan green light. Preapproval can arm you with the confidence you need to make a competitive offer.
We’ll walk you through the mortgage prequalification process—how it differs from preapproval— and show you how it can streamline your home-buying experience.
Mortgage prequalification is a way for prospective home buyers to discover how much they may be able to borrow for a mortgage. The prequalification process also is a chance to learn about available mortgage types—like government-backed loans and mortgages for first-time home buyers—so you know what to expect as you begin your home search.
Less involved than seeking mortgage preapproval, you’ll be required to provide the lender basic information about your finances. This may include income information, bank account information and desired down payment and mortgage amounts. Most lenders also run a soft credit check to get a general idea of your creditworthiness, which has no negative impact on your credit score
If you’re in the market for a new home, you can request a mortgage prequalification at your local bank branch or—in many cases—online. However, lenders also use prequalifications as a marketing tool by targeting creditworthy borrowers who they suspect are potentially low-risk mortgage customers. These offers typically come in the form of phone calls or mail and may include preliminary mortgage details.
Mortgage prequalification involves getting an estimate of how much your lender may be willing to lend based on your general creditworthiness. The prequalification process does not involve a hard credit check, and lenders typically rely on prospective borrowers to self-report basic information about their bank account balances, income sources and loan preferences.
This process is less formal than preapproval and, when completed online, can yield a response immediately—though some lenders take longer. However, because prequalification doesn’t involve an in-depth review of borrower finances, it does not guarantee you’ll be approved for a mortgage.
On the other hand, mortgage preapproval is based on a more comprehensive analysis of a prospective borrower’s financial health. To get preapproved, most lenders require applicants to provide copies of their pay stubs to establish current income, bank account numbers and recent bank statements, W-2 statements and both personal and business tax returns from the last two years.
Because the preapproval process is more comprehensive, it can take up to 10 days to complete. That said, once preapproval is complete, the lender typically provides a preapproval letter that will show you the authorized loan amount, interest rate information, the estimated down payment and, in some cases, the estimated mortgage payment.
Getting prequalified for a mortgage typically involves self-reporting basic details about your finances to a lender. Depending on the lender, you may have to visit a branch to complete the prequalification process. However, many lenders now offer online prequalification. If you’re trying to get prequalified for a mortgage, you’ll likely have to provide information about your:
A prequalification letter is a document that lenders issue outlining how much it’s willing to lend based on a borrower’s self-reported financial information. Prospective home buyers can use a prequalification letter to demonstrate their financial strength—and the likelihood they’ll be approved for a mortgage—to sellers. For that reason, prequalification letters typically accompany offers to buy property—especially when closing is contingent on the buyer’s ability to secure financing.
Keep in mind that preapproval letters are similar, but you’ll have to undergo a more comprehensive process to receive one. Some lenders even require borrowers to complete a formal mortgage application. For this reason, preapproval letters are more meaningful than prequalification letters, but they also take longer to receive. And, like prequalification letters, preapproval letters are still not a guaranteed loan offer.
Prequalification usually involves a soft credit check, meaning it will not negatively affect your credit score. That said, getting prequalified is only the first step toward getting approved for a mortgage. To get preapproved—or approved—for a loan, your lender will ultimately run a hard credit inquiry to get a more comprehensive picture of your creditworthiness.
If you’re unsure of whether getting prequalified for a mortgage is worth it, consider the pros and cons of doing so.
Forbes Advisor Editor in Chief Mike Cetera contributed to this article.
