Getting qualified is the first step in the mortgage process. It's usually free and fairly simple. You supply some basic financial information such as your income, debts and assets to a lender, who then determines the loan amount for which you qualify. Mortgage qualification is not the same as preapproval. The lender won't call for your credit report or thoroughly investigate your ability to repay a loan.
Jumping Off Point
Mortgage qualification or prequalification is an initial step that allows you to discuss your mortgage requirements with one or more lenders. You don't commit to taking out a loan with any lender, and the lender does not commit to giving you a loan. At this point, your lender simply assesses the approximate loan amount you qualify for, based on your income and expenses. You can use that figure to discuss your mortgage options and chose the product that best suits your requirements.
Quick and Simple
To get prequalified, simply telephone your chosen lender or contact it online. The operator or online calculator will ask you a number of questions about your income, such as your salary, rental income, investments and child support payments, and about your debts, such as credit card payments and car loans. Have to hand your pay stubs, or your past two years' tax returns if you are self-employed. Some lenders may ask you credit-related questions, such as whether you have suffered bankruptcy or a previous foreclosure. Based on your numbers, your lender will provide you with an estimated loan amount.
Do Your Homework
While prequalification will put you in the ballpark of what you could borrow, this may not be the same as what you should borrow. Before you speak to a lender, it's worth taking a hard look at your finances and lifestyle. For example, if eating out is important to you, you may choose to factor an appropriate allowance into your monthly budget when figuring out how your mortgage repayments will fit into your overall financial picture. Lenders probably won't go into this level of detail when prequalifying you for a loan. They may offer you more than you can comfortably afford.
Don't Fudge It
When you're ready to search for a home, your real estate agent will likely ask for a copy of your prequalification letter. She'll then limit her efforts to those properties in your price range. If you've been less than forthright with your lender during the prequalification process, you'll end up wasting everyone's time by looking at homes you can't afford. Your actual income, loans and delinquent bills will crawl out of the woodwork during the preapproval process, when your lender scrutinizes your credit reports and debt profile. Dodging the hard questions at prequalification damages your credibility in the long run and may harm your chances of securing a loan.
Jayne Thompson earned an LLB in Law and Business Administration from the University of Birmingham and an LLM in International Law from the University of East London. She practiced in various “big law” firms before launching a career as a commercial writer. Her work has appeared on numerous financial blogs including Wealth Soup and Synchrony. Find her at www.whiterosecopywriting.com.