Prequalification

A prequalification determines how much of a mortgage the buyer can afford, and it can also give the buyer an idea of how much their monthly payment will be depending on the amount they borrow. The best time to get a prequalification is at the very beginning of the home buying process, even before the buyer starts to look at houses.

During a prequalification, the lender will ask for details about the borrower's income, employment history, debts, credit, and assets. The process generally only takes a few minutes and it will give them buyer a quick indication on whether or not they will qualify for a loan with a particular lender. A prequalification is non-binding because none of the information is verified at that point, and it does not guarantee that the potential buyer will be approved for a loan.

Preapprovals tend to be more beneficial than a prequalification. A preapproval acts as a tentative commitment for mortgage funding from a particular lender. When applying for preapproval for a loan the borrower should apply for the maximum amount. The amount can always be adjusted or reduced later. The amount of the loan will also be conditional upon the appraisal value of the property and whether or not it meets the lender's approval standards.

Getting preapproved for a loan will give the buyer an edge while looking for the perfect home. By knowing how much they will be able to borrow, the buyer can spend their time looking at homes in their price range, and they can weed out houses that they cannot afford. This will allow the buyer to be able to take a more detailed look at the houses that they are realistically able to purchase.

A preapproval is not a mortgage loan guarantee. The lending agency will carefully review the title search and property appraisal to determine if the home and buyer meet lender standards.

Receiving a preapproval will give the buyer an advantage during the negotiation process once they are ready to put an offer in on a house. Preapprovals give sellers confidence that the buyer's financing will not fall through, and they will be more likely to immediately accept an offer, even for a price that is less than the listed price.