What Does it Mean to Prequalify for a Mortgage?
If you have been pouring over your computer looking at the homes for sale and are hoping to purchase a house in the near future, then you need to get ready to begin the prequalification process. In order to get prequalified, you are required to supply the potential lender with your financial information. The prospective lender will then calculate how much you can borrow. Once you are prequalified, you will have a better idea of how much of a mortgage you can afford. Unfortunately, the amount that you prequalify for is based on a cursory review of your financial information.
Figure Out How Much You Actually Make
Do you know what your take-home pay is? You would be surprised how many people do not actually know how much money they take home on a monthly and yearly basis. This is something that you should know for a variety of reasons, and something that you will definitely need to be able to tell the prospective lender when applying to be prequalified. This is the amount that the lenders use to calculate how much you qualify for. You can figure this amount out by either add up all of your income for the year or by looking at your most recent W-2 form and your pay stubs.
Sort Out Your Assets and Debt
Before being able to figure out how much of a mortgage payment you can actually handle, it is essential that you know how much debt you have and how much you have in assets.
Being knowledgeable of your assets will also help you to speak with and understand what potential lenders are going to be considering. A lender will take into consideration the value of your financial assets. They will also want to know how much cash is willing to budget for a down payment, closing costs, and escrows.
In addition to a breakdown of your assets you also need to provide the potential lender with information about your monthly debt expenses.
Provide the Lender with the Necessary Information
It is pretty straightforward to get prequalified for a loan. Large banks will let you start the prequalification process online. One any banks website you will see a phone number or a link you can click to get started on the prequalification process. You can also apply for prequalification by going to a bank and asking to speak to a loan officer. However, you shouldn’t limit yourself to banks. You can also try lenders, brokers, and credit unions, among others.
The lender that you are applying with will ask for necessary information like your name, social insurance number, address and phone number. The lender will also ask you how much you would like to finance. After that, some lenders will follow up with you to get some information regarding your financial status (assets, debt, income), whereas some other financial institutions will have you submit all of this information online.
Find Out Your Results
As stated earlier in this article, the prequalification process is pretty straightforward. The result will be determined by the information that you supply. Shortly after you apply, the lender will tell you how much you can borrow. Now, it is crucial that applicants be aware that by prequalifying you are not being promised this amount. Heck, the lender is not even promising to lend anything to you. The prequalification basically gives you a loan amount that you might qualify for based on a specific monthly payment. Because of this, you need to remember that if you decide to look at properties toward the upper limit of your prequalification, taxes, and insurance vary for every property. This means that these changes could result in you qualifying for less or more than your prequalification letter.
Prequalification is a helpful resource because it provides you with a general idea of how much you can borrow. That said, it is not a pre-approval, promise or guarantee. It is an estimate. The lender doesn’t verify any of the information you provide them, so if there are disparities or a miscalculation on your part the numbers are likely to change. However, now that you have your prequalification, you can decide if you feel ready to apply for pre-approval and seriously start looking for a house.