You and your significant other have been dreaming about houses for months. She likes colonials and you like ranches; you want to be in the city and she wants to be in the suburbs. Options and decisions may already seem overwhelming and you haven't even started to shop yet. You both may have a fuzzy idea about what you can afford, but not really. Mortgage pre-qualification will not answer what style of home to buy, but it will take the guesswork out of home financing and will make searching for your new home more efficient.
Pre Qualification Takes a 15-Minute Phone Call
In a 15-minute phone call, your lender can prequalify you for a mortgage. A "pre qual" is a non-binding opinion on how much of a mortgage you can afford. You will come away from the phone call with an estimated monthly payment and a price range to shop based on the loan size. A pre qual is a guide as you go through the home buying process. It does not guarantee you will be approved for the mortgage.
A Pre Approval Takes Longer
The closest thing to getting a loan comes with pre approval. To get pre approved, you will need to fill out an application and provide all necessary documentation about your employment and financial situation. The lender will also run a credit check and the lender's underwriters will evaluate your application. If everything is in order, you will be cleared for a loan of a determined amount, but you still do not have a commitment. The pre approval process can take up to a week or more.
Your lender will issue a firm commitment once a seller accepts your offer, the appraisal is satisfactory and your credit has been rechecked. If all of these are green-lighted, you will have your mortgage.
Benefits to You, Your Agent and the Seller
Pre qualification helps you know exactly what price range you can afford. By knowing the price range, your agent can spend more time finding houses that fit your financial situation. Additionally, a seller will know you are serious if he has a pre qualified offer.
Lisa Nielsen is a marketing consultant for small businesses and start-ups. As part of her consultancy, she writes advertising copy, newsletters, speeches, website content and marketing collateral for small and medium-sized businesses. She has been writing for more than 20 years. She is also a business strategist, trainer and executive coach. Nielsen holds a Master of Business Administration from the University of Miami.