prequalifying for a mortgage

prequalifying for a mortgage

Prior to obtaining a mortgage, consumers commonly seek to pre-qualify. This is the procedure of having a lender look at the consumer's credit profile, debt to income share, and from there make an educated guess about how much money the lender is willing to grant to the consumer as a mortgage loan. This is frequently done before the consumer ever even starts looking at homes. For the common of home shoppers, this prequalification essentially determines the value range of homes they will focus on with their buyers' agents. What is more, such a prequalification protects consumers from bidding for a house only to be disregarded because they lack a lender letter stating that this bidder is a serious contender and considered creditworthy by a lender.

Prospective home sellers want to see buyers who have already entered into discussion with a lender willing to write a mortgage loan for them. This separates these consumers from others who might not be able to secure financing, and who may - while the buyer and seller are tied up in a transaction that will ultimately fall through - in the end be a costly mistake for the seller who sends other would-be buyers packing. While there are a number of mortgage calculators on the Internet, the only accurate means of discerning how much money a borrower can qualify for is through discussion with an actual lender. After all, even though the lending rules are fairly standard throughout the industry, different lenders offer different loans.

Moreover, some lenders may not offer the kinds of loans a consumer might find more profitable and which, in the long run, might allow her or him to buy more house for the money. This is especially true for borrowers who would like to buy more home at the onset than they have money for in the long run, but - because of future business growth - anticipate being able to afford the actual house payments in the future. Such loan products may include adjustable rate mortgages, balloon payments, and also low interest or interest only loans that for brief periods of time offer a set of payments easy on the pocketbook. In some cases there are even alternative means of financing that only lenders truly know about and can set up for their clients.

Prequalifying with a lender is quick and easy. Rather than submitting a whole loan application, the would-be borrower merely needs to disclose assets, liabilities, monthly payments, income from all sources, and consent to having a credit report pulled. The lender will calculate these figures and based on the debt to income ratio and also the underwriting standards germane to that particular financial institution offer a figure which presents the upper cap of the loan the bank is likely willing to offer. In some cases they might even go so far as to calculate the interest rate the consumer might have to pay for the loan, which further influences the buying choice of future homebuyers who are ready to make the largest investment in their lives.

prequalifying for a mortgage

Difference between PreQualifying for a mortgage and PreApproval for a mortgage.

Pre-qualification is an informal way to see how much you maybe able to borrow. You can be 'pre-qualified' over the phone with no paperwork by telling a lender your income, your long-term debts, and how large a down payment you can afford. Without any obligation, this helps you arrive at a ballpark figure of the amount you may have available to spend on a house.

Pre-approval is a lender's actual commitment to lend to you. It involves assembling the financial records and going through a preliminary approval process. Pre-approval gives you a definite idea of what you can afford and shows sellers that you are serious about buying.

Benefits of Prequalifying for a Mortgage

Mortgage lenders and real estate professionals repeatedly sponsor prequalifying for a mortgage as the best route for prospective homeowner. Prequalifying establishes how much you can borrow and the price range of homes you can afford to buy.

Prequalification Can Streamline Purchasing Process
Mortgage lenders can prequalify you for a home loan before you start looking at homes. Lenders can help decide what kind of home loan best suits your situation and explain the features and benefits associated with various mortgage options. You can use free affordability calculator tools to get an idea of how much you can afford, but having a lender formally prequalify you for a mortgage loan can give you a "leg up" in the home buying process.

Establishing Affordability: By prequalifying for a mortgage before you start shopping for your new home, you can focus your efforts on houses that you can genuinely afford to buy. You can use free affordability calculator tools online. Being prequalified or preapproved for a mortgage loan can provide leverage with sellers.

Motivating Sellers: Sellers entertaining numerous offers may pay more awareness to offers submitted by prequalified buyers. The sellers know that these buyers have taken the time to shop for mortgage financing and that the sale may close faster.

Saving time (and maybe money): Once you're prequalified, you know which homes you can afford and won’t waste time viewing homes that are out of your price range. Prequalified buyers can make an offer with reasonable certainty that they can get the mortgage financing they need. The lender has already done some of the preliminary work; this can help avoid last minute delays because of mortgage approval issues.

Planning for extra costs: If you're buying your first home it can be easy to overlook additional costs of homeownership. By prequalifying for your mortgage, you'll have an idea of what your mortgage payments will be and can plan for home continuation and repairs, lawn care, and extra function charges. The amount you prequalify for is the highest mortgage sum you can borrow; by considering homes requiring a lower mortgage, you can budget to allow for additional costs associated with owning a home.

Improve Your Negotiating Power: You may need to make a oppose offer when buying a home. Sellers may be more flexible when considering terms of your offer or counter offer as a prequalified buyer.

Streamline the closing process: Prequalified buyers have established a relationship with a mortgage lender and know what to expect in terms of qualifying for a mortgage. Even though prequalifying doesn't eradicate the chance of delays before closing, it can decrease the chance of "surprises" involving your capability to get the mortgage you require.