Mortgage prequalification: What it is and how to get it

You’ve probably seen the ads or banners or billboards: “Get prequalified for a mortgage now!” Mortgage prequalification can help you determine your homebuying budget, by giving you a rough sense of your borrowing power. However, it is only an estimate, and it won’t help you much if you want to make a hard offer on a home.

Here’s everything to know about mortgage prequalification, including what it is, how to get it and how it differs from a mortgage preapproval.

What is mortgage prequalification?

Mortgage prequalification shows that a mortgage lender has estimated how much house you can afford based on basic financial information about you. It’s a preliminary indication whether you can get a loan, and how much that loan might be.

Bear in mind, this is not a loan commitment or a guaranteed amount. Nor is it an official application. Applying for the actual mortgage comes after a seller accepts your offer on a home.

How to prequalify for a mortgage

Most prospective homebuyers seek a mortgage prequalification online or by phone. To prequalify for a mortgage, you’ll need to provide the lender with information on:

• Your income
• Your employment
• Your monthly debts or obligations
• Your financial assets: savings, checking, retirement and investment accounts
• Your Social Security number
• Your planned down payment
• Your history of bankruptcies

“Prequalification is an early step in obtaining financing,” says Will Reynolds, a real estate agent based in Nashville, Tennessee. “This is not a guarantee of a loan, but simply a first, but very important step, in the process.”

The process is quick, too. The lender takes your info and evaluates it, often running a soft credit check. After inputting your info, you should have your answer within minutes.

Why get prequalified?

Getting prequalified has a number of advantages. First, it can help you establish a ballpark homebuying budget: If you have a sense of how much you can finance, it’ll help determine how much home you can afford overall. That way, you’re less likely to be looking at houses or neighborhoods outside your price range.

Getting prequalified can also help expedite the loan process. While you will have to apply and submit actual paperwork this time, you”ll have a sense of what sort of info the lender wants, and can be ready with figures and documents.

While most home buyers can benefit from getting prequalified, it’s not always necessary. For example, if you have a clear sense of your price range, have compared lenders and have gotten your finances in shape, you can skip the prequalification and apply to get preapproved.

Mortgage prequalification vs. preapproval

While they sound a lot alike  — and are sometimes used interchangeably — prequalification is not the same as preapproval.

With a home loan prequalification, lenders take your word about your finances; they don’t require documented proof. A prequalification will give you a sense of what you can afford, but it doesn’t guarantee you’ll get a loan that size, or even a loan at all. In contrast, a preapproval is more of a commitment on the lender’s part —an agreement in principle to extend you a certain amount of financing, often with an estimated interest rate.

More key differences between preapprovals and prequalifications include:

Mortgage prequalification

• What you need to submit: Info on your income, how much you want to borrow and your down payment
  • Usually includes a soft credit check
• How long it takes: Usually only a few minutes
• Why it matters: Can help you estimate how much house you can afford

Mortgage preapproval

• What you need to submit: Documents proving your income, debt, bank accounts, tax returns
  • The lender will also do a hard check of your credit history/score
• How long it takes: In some cases, up to 10 days, although many online lenders offer preapprovals within a couple of minutes
• Why it matters: You’ll have evidence that you’re a serious buyer with financing lined up

Basically, a preapproval carries greater weight. You should have a preapproval letter in hand before making an offer on a home. It provides more proof to the seller that you can make the deal happen. Some sellers even require buyers to submit a preapproval letter with their offer.

A prequalification, on the other hand, is better suited to the just-getting-started stage. It can help you determine your price range for house-hunting. You can get a letter attesting to your status, but it won’t cut much ice with sellers, as it doesn’t guarantee you have backing to buy a home.

Mortgage prequalification FAQ

• Does getting prequalified affect your credit score?

  Typically, mortgage prequalification only involves a soft credit check, which doesn’t impact your score. Ask mortgage lenders how they structure their mortgage prequalification process and whether it will include a soft or hard credit check.A hard check, or hard pull, will lower your credit score temporarily. If you’re shopping around for rate quotes from multiple lenders — which you should definitely do — your credit score will only be affected by the first application, provided you apply for them all within a 45-day window.
  

• What is a prequalification letter?

  A prequalification letter is a statement from a mortgage lender that provides information about how big of a loan you might qualify for. It is not a firm commitment to lend and can’t be used to verify financing when submitting an offer on a home.
  

• How long does prequalification last?

  Each lender sets different standards, but most prequalifications and preapprovals last 30 to 90 days.
  

• Which documents are needed during prequalification?

  You don’t need to provide documentation to prequalify for a mortgage. Unlike a preapproval, a mortgage prequalification is an initial screening. You’ll likely need to fill out an online form or verbally answer questions, but you won’t need to substantiate the information you provide.
  

• What should I do next after getting prequalified?

  Once you prequalify for a home loan and are ready to house hunt, get preapproved. Preapproval is more involved than prequalification and involves submitting documentation so your lender can assess your financial situation. Once you’re preapproved, you’ll be in a great place to start making offers on homes, submit your official mortgage application and complete the purchase.
  

Additional reporting by Elizabeth Rivelli