Getting a Mortgage? How Mortgage Calculators Help You Prequalify

Prequalifying for a mortgage can give you a "leg up" in competitive housing markets, and reduce the likelihood of credit issues after you've made an offer on a home. Here are some tips for getting ready to prequalify for a mortgage.

Prequalify for a Mortgage: Why all the Advance Preparation?

Prequalifying for a mortgage means having a mortgage lender agree to loan you money up to a certain amount, and documenting that agreement in the form of a prequalification letter.  It is not a mortgage loan, but because you have been pre-approved by the lender as being credit-worthy, it can be a very useful tool during the homebuying process.

Prequalifying for a mortgage can provide leverage when you shop for a home. Sellers will know that if you've taken time to prequalify, you're serious about buying rather than "just looking." Other benefits of prequalifying for a home loan include:

Establishing mortgage limits: Once you prequalify, you'll know how much you can afford to borrow, and can focus on homes that are affordable, rather than spending time viewing homes that you truly cannot afford (see our mortgage affordability calculator to answer the question "How Much Can I Afford"). By prequalifying for a mortgage you can also prevent problems associated with having an offer fall through on a home you can't afford because a lender didn't approve the mortgage necessary to cover your payment. 

Obtain your credit reports/scores: Each of the three major credit bureaus quantifies your creditworthiness with a number that represents your credit score. You can obtain your credit reports at no cost once a year. Credit scores are also available for a fee; consider the money you spend for credit scores as an investment in your new home. Knowing your credit scores in advance of prequalifying can help you shop for the best possible deal based on your creditworthiness. You can get your free annual credit reports and order your credit scores at annualcreditreport.com.

Save time: Knowing your credit standing before prequalifying can help you avoid having to rework your plan for buying a home. And if you're prepared before approaching mortgage lenders you may avoid being misdirected to mortgage products that aren't suited to your needs. Knowing how much you can afford to pay for a home and how much you can afford for monthly payments can streamline the mortgage approval process while focusing your home shopping. Using free mortgage calculators can help you estimate monthly payments and affordable mortgage amounts. It's important to understand that mortgage payments are subject to change depending on rate adjustments and increases in the cost of property taxes and hazard insurance.

Straight Talk with Mortgage Lenders

In order to prequalify you for mortgage financing lenders typically review your financial and employment information.  Gross income, the total amount of your financial obligations including your estimated housing payment and your credit standing are considered when you prequalify for a mortgage. If you can document this information and are familiar with it before prequalifying you'll be in a better position to help your lender match your needs to the right mortgage loan.

Posted By :
Karen Lawson is a freelance writer with extensive background in mortgage banking. She holds BA and MA degrees in English from the University of Nevada, Reno.

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