Prequalify for a Mortgage : Five Things to Consider

By Karen Lawson
Calculators for Mortgages Columnist

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Why Should I Prequalify for a Mortgage?

You've probably received solicitations from lenders and heard advertisements    urging you to prequalify, but what does it mean, and how do you do it?

Your ability to prequalify for a mortgage suggests to home sellers that you're  serious about buying a home, and that you can afford to buy homes within a  specific price range. Prequalifying does not mean that you've  been approved for a mortgage loan. Prequalifying is best considered a tool  to use during your search for a new home. Here's how prequalifying can help:

 
• Establishes Affordability: A mortgage lender can prequalify    you for a home loan based on your income, employment, and monthly debt obligations.    This information provides an estimate of how much you can afford to pay based    on standard underwriting criteria.
 
• Knowing Your Price Range: It can be easy to waste time    looking at homes beyond your financial reach. Don't risk trying to buy a    home that you can't afford and financing it with a mortgage that may cause    problems later. This is how home buyers can get into financial trouble. Prequalifying    can provide a ball park price range for homes that you can afford to buy    based on information you've provided.
 
• Informs Sellers and Real Estate Professionals of Your Intent to      Buy: If you prequalify for a home loan, your lender may provide      a document indicating preliminary approval for a mortgage loan. This lets      sellers and real estate agents know that you're serious about buying a      home, and not just looking to see "what's out there" or how your neighbors'      homes compare with yours.
 
• Suggests Goals for Buying the Home You Want: If you want    to buy a home in a specific area or price range, but prequalifying suggests    that you can't afford it, you can determine how much additional down payment,    income, or other assets you'll need to achieve affordability.
 
• Assists Lenders in Finding the Right Mortgage: When you    prequalify, you're not obligated to get a mortgage from the lender that prequalifies    you, but prequalifying can establish a business relationship and provides    potential lenders the ability to match mortgage loan options to your needs..

When prequalifying, it's important to remember that prequalifying does not  guarantee mortgage approval.

"Prequalify" and "Qualify" Don't Mean the Same Thing

When you're ready to get approved for a mortgage loan (preferably before shopping  for a new home!) you can apply for a mortgage loan. The approval process is  more involved than the process used to prequalify you for a mortgage. Your  lender will review your credit, verify your employment, and carefully review  your financial information, including tax returns or other documentation of  income and assets. It's possible to prequalify for a mortgage and later fail  to get approval for the mortgage you need

Source:
Prequalify for a Mortgage    

About the Author
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.