What is prequalification for a mortgage?
A prequalification letter is your lender’s opinion of the maximum amount for which you may qualify (or can afford) in purchasing a home. Prequalification can be completed fairly quickly because it requires less information than mortgage pre-approval. Even after prequalification, you will need approval for a mortgage. Pre-approval is the step between prequalification and approval that can give you an edge when buying a home.
Benefits to getting pre-approval for a mortgage, include:
- Knowing exactly how much you can afford
- Giving you a competitive edge over buyers who are not pre-approved
and speeding a seller’s ability to accept your offer
- Reducing the time your lender needs to fund your loan
To get mortgage pre-approval and approval, you must provide documents
the lender will verify, including proof of your:
- Overall debt and monthly debt payments relative to your income (debt-to-income ratio)
- Available cash or savings
- Total assets, including other properties you own
- Credit rating