One of the most commonly asked questions is whether or not prequalifying for a home loan is helpful. In the same regard, many who have never shopped for a home before wonder if they should get prequalified or contact a real estate agent first. It’s important to understand what prequalification is, the benefits and when it is advised to proceed with this process.
What is prequalification?
The prequalification process is the first step before initiating a mortgage application. It’s not difficult to complete. In order to get prequalified you simply provide your lender with your income information, all debts that you owe and any assets that you currently own. The process is usually fairly fast and after analyzing the information that you supply, the lender gives you an estimate of the loan amount that you will qualify for.
Prequalifying versus Preapproval
Often, first-time homebuyers are confused with the terms prequalified and preapproved. It is common for them to believe that prequalification means that they are preapproved for the home loan. These are actually two different things and it’s important to know the difference.
Preapproval is a separate process that also includes a review of your credit rating to determine credit worthiness. Additional information is requested to confirm the validity of income, employment status, and proof of ownership for assets. The preapproval process is much more detailed and requires the submission of multiple documents. Your financial background falls under heavier scrutiny for preapproval.
You can quickly and easily get prequalified online or over the telephone and you won’t have to supply proof to support your financial status. There is no certainty that you will actually gain loan approval just because you prequalify.
The Benefits of Prequalification
It isn’t absolutely necessary to become prequalified before you meet with a real estate agent but it will give you a better idea of what you would be able to afford with regard to the price range. This information is helpful for both you and the agent to rule out homes that do not fit within your price range and it can save a lot of time and effort for everybody involved. While not required, it is definitely a good idea to seek prequalification because it is a fast and easy process, but don’t depend on preapproval until you’ve gone through the process to secure it.