The Importance of Getting Pre-Qualified
As a first-time home buyer, you’ve probably run across the term pre-qualification in books and on websites about home loan shopping. But what exactly does it mean to get pre-qualified, and is it a good idea?
What is Pre-Qualification?
In the pre-qualification process, a mortgage lender takes a quick look at your overall finances – debt, income, assets, and so on. Based on this information, the lender tells you whether you meet the basic requirements for a home loan, and if so, how big of a loan you could qualify for. It’s called pre-qualification because it happens before you’ve actually found a home to buy or started making offers. Once you get pre-qualified, you are issued a pre-qualification letter which can be helpful when putting in offers on homes.
Benefits of Being Pre-Qualified
There are several advantages to getting pre-qualified for a mortgage before you start the house-hunting process in earnest. First of all, going through this process will help you figure out whether you’re financially ready to become a home owner. If you find out that you don’t pre-qualify for a loan, that’s a wake-up call that you need to start getting your finances in order before you begin shopping for a home. It’s much better to discover this at the outset than to spend months house-hunting, finally find your perfect home, and then have your hopes crushed when your loan application is denied.
Second, getting pre-qualified gives you a chance to get the ball rolling on the process of shopping for a mortgage. It gives you a chance to talk to a lender about your particular needs – for instance, how big of a down payment you can afford or how much of your income is tied up elsewhere. Then the lender, in turn, can tell you about different mortgage options and which type could be the best fit for you. Your pre-qualification letter will also help when it comes time to put in an offer, as it shows the seller that you are a serious and financially-capable buyer.
Finally, being pre-qualified gives you a clear idea of just how big of a mortgage you can really handle. Making pre-qualification the first step in your house-hunting journey helps you find the right price range for your home search. That way, when you find the house of your dreams, you’ll know it’s a house that fits within your budget.
What Pre-Qualification Does Not Mean
It’s important to understand that being pre-qualified is not the same thing as actually being approved for a home loan. It doesn’t guarantee that your loan application will be approved, or that you’ll be able to qualify for a specific rate on your mortgage. That will come later, when you’ve actually found the house you want to buy. Mortgage rates may change from the time you get pre-qualified to when you actually find and secure an offer on a home. Pre-qualification is just a useful first step that you can take before you start shopping.
How to Get Pre-Qualified
Pre-qualification is a very simple process. It costs nothing, and can be done in as little as ten minutes over the phone. All you have to do is provide your basic information like your name, contact info, and a brief overview of your finances – debt, income, assets, and credit history. The lender won’t take the time to check out this information in detail; for now, they’ll just take your word for it. Later on, when you find your property and apply for a home loan in earnest, the lender will need to do a detailed examination of your full financial picture.
You can do all this over the phone with a lender, or you can fill out a form online with just the basics, such as your name and phone number, and have the lender contact you for the details. Either way, it’s an investment of just a little time and effort that can be a very helpful step in your home-shopping process.
Ethos Lending is a new type of mortgage lender. We use technology to keep our operational costs as low as possible. From closing costs to interest rates, we have made it our mission to make the process of buying a home more affordable. Get in touch with one of our mortgage specialists to learn more.