We do a lot of scary things throughout our lives: learning to drive, starting a new job, and figuring out how to prequalify for a home loan. We can’t help you much with the driving (or teaching anyone to drive), but we can help you in learning about home loans.
For 99% percent of people, buying a home is the biggest purchase they will make in their life. It’s a big deal, and you need to make sure you do it the right way. If you’re serious about shifting your actions from browsing homes you imagine yourself buying to finding the home you will start a life in, learning how to prequalify for a home loan is an essential step.
First, let’s talk about the value of prequalification. It is crucial to make the distinction that prequalifying for a home loan does not mean that you have a guarantee of being approved for a mortgage. Although it is a strong show of faith from the prequalifying bank, it is most useful to prove your interest and intention in buying a home. Being prequalified shows a seller that you are serious about acquiring property, and maybe theirs.
Our recommendations on how to prequalify for a home loan
Many lenders provide some portion of the prequalification process online. There are also plenty of places where you can obtain rates from multiple lenders to give you an idea of your options. To provide yourself with the most accurate rates and ensure ease when moving towards a later approval, we recommend you gather the following information as you figure out how to prequalify for a home loan:
- Income and employment information– Get your W2 forms together (or whatever income statements you have based on your work) and any other documented types of income. Sharing accurate information will bring back the right quotes. Later, when you are looking for preapproval and approval, having these documents already on hand will save you time.
- Assets– Know what you own and the value of your property. This includes bank statements and recent statements from investment accounts. Providing accurate information for your prequalification means you’ll know where you stand. Gathering this information ahead of time means a more relaxed process getting approved for your mortgage.
- Debt Records– Get up-to-date account of your outstanding accounts. This is a vital part of determining how to prequalify for a home loan and learning how much you may be able to borrow. Vital information here will be the amount of debt you have and what your monthly payments are. You should also be aware of whether those payments will be increasing or decreasing in the future. Banks will look at your debt to income ratio to see if you have enough income to pay your mortgage and existing debts.
While valuable, a prequalification is not an approval and not a preapproval. A prequalification requires less information, and a bank does not make a hard inquiry on your credit.
Prequalifications operate primarily on the information that you provide. To make that as relevant as possible, you must make sure to provide accurate information. Embellishing your income or withholding debt information will only hurt your chances of buying a home down the road. On the other hand, if you get your information together accurately from the start, your road to homeownership will be smooth.
Do you feel more confident about how to prequalify for a home loan?