Mortgage Prequalification: How to Get Prequalified for a Home Loan
A home loan prequalification may be necessary when you’re house hunting. Keep your options open by prequalifying with more than one mortgage lender, continuing to chip away at the debt you owe, and saving for a down payment.
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The mortgage application process includes a lot of moving parts that many first-time home buyers, and even homeowners, don’t understand.
One thing many would-be buyers don’t grasp is the importance of getting prequalified quotes. Mortgage prequalification is useful because it shows you how much house you can afford, which can be especially useful if you’re selling a house at the same time.
This guide will show you how and why to prequalify for a mortgage loan.
On this page:
- What is mortgage prequalification?
- Pros & cons of mortgage prequalification
- How to prequalify for a home loan
- How long does getting prequalified for a mortgage take?
- Where to get prequalified
What is mortgage prequalification?
Home loan prequalification is when you do an informal check with a lender to see how large of a home loan or mortgage refinance loan you could get and at what interest rate. It’s basically a gauge of your creditworthiness.
Everyone who is interested in taking out a mortgage should go through a prequalification. It will allow you to compare rates and terms among mortgage lenders. Finding the lowest interest rates and fees will save you a lot of money over the course of a 15- or 30-year loan.
Prequalification will also give you a good idea of your home buying budget, which you can share with your real estate agent. Agents may try for bigger commissions by showing you houses that cost more, so know your budget and stay firm.
Mortgage prequalification vs pre-approval: What’s the difference?
Prequalification and pre-approval for a mortgage are not the same thing.
- For prequalification, a lender gives you a rough idea of how large a home loan and what interest rate you’d likely be approved for based on general information you supply. This typically involves a soft credit check.
- For mortgage pre-approval, the lender will take a deeper dive into your finances, including running a hard credit check and reviewing your pay stubs and current debts. Once pre-approved, you’ll get a letter of commitment from the lender that could help your chances with sellers when making an offer on a home.
Neither of these means you’re guaranteed to get a mortgage. Instead, they tell you what a lender is likely to offer once you complete your application.
Mortgage prequalification: pros & cons
Pros
- Prequalification is only a soft inquiry on your credit history, so it won’t show up on your credit report and impact your credit score.
- It lets you compare rates and terms of various mortgage lenders.
- You’ll get a rough idea of the price range you could feasibly spend on a house.
- You may have to be prequalified before an agent will agree to show you certain homes.
Cons
- You should be serious about buying a house when you get prequalified. If you go through prequalification twice in a single year, it could impact your credit score.
- A prequalification isn’t always accurate; your pre-approval and final approval amount and rate could be for less.
- Prequalification does not come with a letter of commitment from a lender.
How to prequalify for a home loan
Wondering how to get prequalified for a home loan? The process is simple.
If a realtor requires you to be prequalified for a mortgage before showing you a house you have your eye on, you’ll want to do it quickly. For the speediest prequalification, go with online mortgage lenders.
Not all online lenders let you complete the entire process online, though. You might complete the initial inquiry online but have to call in or stop at a local branch to finish the prequalification process.
But either way, online lenders tend to offer speedier application processes than traditional brick-and-mortar banks.
What you’ll need to get prequalified
Trying to get prequalified? Here is the information you’ll likely need.
- Social Security number.
- Proof of income or tax returns.
- Bank statements.
- How much you pay in monthly debt payments.
How to improve your chances of prequalifying
To be prequalified for the amount you need at a good interest rate, these elements of your finances should be strong:
- Your credit score.
- Your salary.
- Your debt-to-income ratio (DTI).
The following tips could help you prequalify, increase the amount of money you can borrow, and land you a better interest rate, which could save you thousands over the life of a mortgage.
- Pay off any lingering debts: Pay down what you can of credit card and student loan debt before going after a mortgage to improve your credit score and debt-to-income ratio.
- Pay your bills in full and on time: Over time, this will help build good credit. While your credit score isn’t everything, it’s a valuable financial tool you can use to your advantage in the future.
- Increase your income: Making more money will improve your debt-to-income ratio. If you’re trying to pay off debt or save money for a down payment, overtime at work or a side hustle could help.
- Spend less: Sometimes the problem isn’t the size of your paycheck, but how much of it you spend. Saving money isn’t always easy to master, but spending less could help you stay on top of bills and save for a down payment.
- Increase your down payment: The more you put down, the less risk a lender has to take to help you afford a home. To maximize the amount a lender will prequalify you for, bulk up your down payment.
- Don’t make other major purchases: Hold off on other financed purchases until after you prequalify and, ideally, after you’ve been approved for a mortgage. This new debt drags down your credit score and increases your DTI.
How long does getting prequalified for a mortgage take?
This can vary by lender, but the mortgage prequalification process is usually pretty fast. You may get prequalified quotes within a few minutes or in up to a day or two. Online prequalification is usually faster than at a brick-and-mortar institution.
Where to get prequalified
If you have time on your hands or reason to believe your local bank will lend you money when no one else will, you can start there. But online lenders are also a good place to start.
Instead of just checking out one lender and hoping for the best, get prequalified quotes from multiple lenders. That will let you compare rates and terms before making a decision that will affect your finances for decades.
Our list of the best mortgage lenders is a great place to start your search. We’ve done the homework for you by analyzing loan amounts, credit requirements, interest rates, customer service options, and more.