Pros And Cons Of Mortgage Prequalification | Bankrate

Buying a house can be a long process, and it often begins with a mortgage prequalification. A prequalification is one step short of a preapproval, but has its advantages. here ’ s what prequalification is all about, and why you might want to get prequalified for a mortgage .

What is mortgage prequalification?

A mortgage prequalification is an calculate of how much a borrower can be approved for based on income and other basic factors. The prequalification process is simpler than the preapproval procedure, and can typically be done through a telephone call option or on-line form that provides some fiscal information to a lender. Because a prequalification merely indicates what you might be able to afford and doesn ’ t require official documentation, it doesn ’ metric ton run out. a long as your credit and finances stay about the like ( and interest rates stay relatively in the same crop ), the prequalification should still hold as a general idea of what you can afford.

Pros of mortgage prequalification

You’ll get an idea of your budget

One advantage of going through the prequalification summons is that you ’ ll have a general theme of what you can afford before you shop for a home, says Mac Cregger, senior vice president of the united states and divisional coach of Angel Oak Home Loans in Atlanta. You ’ ll avoid dagger shock by going through this process early, specially if you ’ rhenium buy your first home. “ Sometimes buyers may have an unrealistic perception of payments on a particular family due to the manner some of the information on mortgage payments may appear on-line, ” says Craig Garcia, president of the united states of Capital Partners Mortgage in Coral Springs, Florida. “ Having a strong cognition of what a naturalistic requital is on a home can help buyers focus in on properties that realistically match their budgetary desires or constraints. ” potentially, you ’ ll besides know where you stand with close costs, says Abel Carrasco, lend originator with Homeowners Financial Group in St. Petersburg, Florida. “ Understanding how much money you ’ ll need to bring to close up, including the down payment and close costs, will help you better manage your spend and avail plot a course to help you achieve your goal of homeownership, ” Carrasco says .

You could be in a stronger position

A prequalification can put you in a “ better negotiating military position with the seller, ” points out Peter Boomer, a mortgage administrator at PNC Bank — although these days, a preapproval holds a lot more weight. still, being prequalified can help let the seller know “ you mean business, ” Carrasco says. “ It ’ s not uncommon in this grocery store for sellers and their Realtors to insist on seeing a prequalification letter prior to evening letting you see the home, ” Carrasco says. “ In a hot market, sellers don ’ deoxythymidine monophosphate care to waste their time preparing their family for a show and leaving only to have a ‘ tire kicker ’ traipse through their house with no means or intentions of buying it. ”

You can learn more about your options

Although prequalification is not a formal process like preapproval, it gives a borrower the opportunity to provide some data to a lender on income, assets and liabilities, Cregger says.

now that the lender has this information, you can learn about the unlike types of mortgages that ’ five hundred suit for your position, and potentially any first-time homebuyer programs or aid you qualify for. “ possibly you are able to purchase with less of a down requital than you assumed or possibly your credit is in better shape than you thought, ” Garcia says. “ Understanding your options helps you make better decisions when it comes to selecting a home. ”

Cons of mortgage prequalification

It can affect your credit score

If you get prequalified multiple times over a hanker period, such as once in January and again in June, your credit score will be impacted. This international relations and security network ’ triiodothyronine ideal, since you ’ re looking to apply for a loanword with the most golden rate and terms. If you make mortgage prequalification inquiries over a short window, however, they ’ ll have short effect on your score. That ’ randomness because credit grade models group inquiries within a shorter period, typically 30 days, into one inquiry on your credit report. That means you should do all your shopping around in a shortstop measure of fourth dimension, if you can. “ It ’ s your correct as a consumer to be able to shop between lenders to make indisputable you ’ rhenium getting competitive quotes, ” Carrasco says. once a lender pulls your accredit, that same report will be used for underwriting if you submit a entire mortgage application — and the lender doesn ’ triiodothyronine have to pull it again, since the report is good for 120 days, Carrasco adds .

Nothing is guaranteed

The mortgage industry does not have a define criterion on what precisely constitutes a prequalification or preapproval, Garcia says. Most mortgage lenders consider a prequalification as a preliminary overview of a borrower ’ s needs and qualifications, designed to give the borrower an understand of what may be potential. In other words, prequalifying doesn ’ deoxythymidine monophosphate entail you ’ re guaranteed to get a loanword. In fact, if the prequalification process international relations and security network ’ thyroxine deoxyadenosine monophosphate involved as the preapproval or doesn ’ thyroxine go into sufficient contingent about your fiscal site, you can still get denied. In this way, prequalifying can give a false sense of security .

How to get prequalified for a mortgage

Getting prequalified for a mortgage is a relatively easy march. once you have a mortgage lender in heed, you can typically request a prequalification on-line or by telephone. many lenders offer a simple on-line form.

Be prepared to parcel details on your income, debt and assets — but don ’ thyroxine worry about providing documentation to prove this information. Once you complete the prequalification form ( and if you ’ re deemed eligible ), you can expect to be prequalified within a few hours, or up to one business sidereal day .

Next steps

If you ’ ve been prequalified, your adjacent steps in the home-buying process include :

  • Getting preapproved for your mortgage
  • Finding a real estate agent and looking for homes
  • Making an offer and negotiating terms
  • Getting the home inspected and appraised
  • Waiting out the underwriting process
  • Closing on your loan

That beginning mistreat, preapproval, can involve a distribute of paperwork, so be ready. In the preapproval process, the lender reviews your recognition reputation and fiscal situation and approves you for a specific mortgage lend total. This requires submitting more detailed information, including software documentation about employment, car and student loans, total savings and early debt such as credit cards .

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