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Prequalify for a Home Loan

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If you’re interested in buying a home, you could probably benefit from a prequalification. A prequalification can help inform your new home search from the very beginning.

Here’s what you need to know: 

What Is a Prequalification?

A loan prequalification gives you an estimate of how much you can afford to spend on a home based on your basic financial information. While the prequalification process is quite quick and informal, it could provide you with the information you need to really begin your home search.

After all, knowledge is power, and you’ll need all the help you can get in this competitive real estate market. 

Why Should You Get a Prequalification?

Receiving a prequalification is an important step towards buying a home. For starters, it helps inform you of your purchasing price range and can help you determine what you can afford to buy. From there, you can decide where you want to buy — or if it even makes sense for you to buy at all based on current real estate market conditions. 

A prequalification also helps you work with a real estate agent to find a home that you love and that fits in your budget. Figuring out what you can afford now can save you a ton of heartbreak, later on, should you fall in love with a house that you can’t afford. It can also give you an idea of what you can improve on to become even better qualified for a mortgage in the future.

How to Get a Prequalification?

Clearly, there are many benefits of receiving a prequalification before you begin your home search.

Here are the three steps you need to follow to make it happen: 

Step 1: Find a Lender

For starters, you need to find a lender to prequalify with. There are many different lenders to choose from. For example, you could choose to get prequalified with your bank. However, there are other mortgage options out there that you may want to consider before making your decision. 

Private lenders are a great option for those looking for more flexibility and efficiency in the home buying process.

Private lenders like Vaster are often more willing to work with individuals who may not have a traditionally good credit history — or any credit history if they’re coming from another country.

Private lenders are also better able to expedite the lending process and are able to close in a matter of days rather than a matter of weeks. 

You may also want to consider going with a mortgage broker. Brokers work with both borrowers and lenders to provide borrowers with the best loan products at the best rates. They can offer a wider range of loan products and are able to negotiate interest rates on behalf of borrowers. Finally, they can provide you with tons of guidance and insight into the mortgage and purchasing processes. 

Step 2: Provide Information

Next, you need to provide your chosen lender with the information needed to process your prequalification. Different lenders look for different information.

In most cases, you should be prepared to provide information about your monthly income, bank accounts, and desired down payment amount. The lender will then take this information and run a credit check

Step 3: Receive Prequalification

Based on the information you provided in your prequalification application and the information the lender received from your credit report, you are then provided with your mortgage prequalification with the amount that you can afford to spend on a house. 

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Things To Keep in Mind About Your Prequalification

Here are some things to keep in mind about your prequalification to help inform your home buying process: 

  • Just because you’re qualified to purchase a home of a certain amount doesn’t necessarily mean that you should. For example, you may be able to buy a house up to $500,000, but this would likely leave you with less money to spend on other expenses like vacations, renovations, businesses, etc.

So feel free to take the prequalification as merely a suggestion of your maximum amount and use your own calculations to figure out what you’re comfortable spending. 

  • Your prequalification doesn’t take into account your loan interest rate. The interest rate of your mortgage loan can easily add hundreds of dollars to your monthly payments.

So keep in mind that if you have a lower credit score and don’t qualify for the best interest rates, it may make sense for you to spend less on the actual house—you’re going to be spending more on interest.

However, now is the time to work on improving your credit so that you can receive low-interest rates when you apply for your preapproval. 

  • Be honest and upfront during the entire process. As the prequalification process is based on self-provided information, it’s critical to be as honest and upfront as possible so that you can receive an accurate prequalification amount.

It won’t do you any good to overestimate on your prequalification application. You might find a house that you love at the maximum amount only to get denied a loan of that amount later on. 

Buying a home in Florida? See how much you qualify for. Get Pre-Approved  

What to Do After You Receive a Prequalification?

Now that you have your prequalification in hand, you’re ready to move forward with your home search.

Here’s what you should do next: 

1. Find a Real Estate Agent

Most real estate agents want you to have a prequalification before they begin showing you houses. So now that you have this item covered, you can start looking for a real estate agent to help you with your home search. 

Ask friends and family if they have worked with any agents that they would recommend. If you aren’t able to find any personal recommendations, the next best place to look is online. Conduct a search for agents in your area and research several options before contacting them. 

Make sure that the agent you choose is experienced in the market you’re looking to buy in. Also, make sure that they’re responsive to your questions and requests; it’s important to move quickly in this fast-paced real estate market.

Finally, make sure that you have good chemistry with them and you feel comfortable being completely honest with them about the houses you’re looking at. 

2. Begin Your Home Search

After you’ve found a great real estate agent, it’s time to really begin your home search. Come up with a list of things you need in a house and a list of things you want in a house. Also, come up with a list of things in a house that are deal-breakers and some that are bonuses.

It might be a good idea to look around in neighboring areas to see what you can afford in different places. Just make sure to keep your work location in mind when considering different neighborhoods. If you have school-aged children, also pay attention to the schools in the areas you’re considering. 

3. Get Preapproved

Once you have a better idea of what you can afford and where you can afford to buy, it’s probably a good idea to get preapproved for a home loan. You might think that a preapproval sounds quite similar to a prequalification, and in many ways, it is. However, there are a few key differences between a prequalification and a preapproval. A good time to get a pre-approval is when you are planning to buy a home in the next 60-90 days.

For starters, a preapproval is a more involved process that is used to demonstrate that you’re a qualified buyer likely to be approved for a mortgage loan. During the mortgage preapproval process, the lender verifies all the information you provide. As such, the process tends to take longer. 

A preapproval also holds more weight since it relates to your borrowing ability rather than just your income and credit score. As a result, sellers will want to see a preapproval in hand when you make an offer to consider you a serious buyer. 

4. Submit an Offer

Now that you’ve found the house of your dreams with the help of your real estate agent, it’s time to submit an offer. In the old days, you could submit an offer below the asking price and negotiate with the buyer for the best price.

These days we are dealing with a seller’s market, which means that buyers need to be prepared to meet the asking price. In some scenarios, buyers may also need to offer above the asking price to beat out competing offers. 

Another component of your offer that you need to consider is the home inspection. Again, inspection contingencies were commonplace before the real estate market took off.

Now, sellers aren’t usually willing to entertain any offers with contingencies — including inspection contingencies. This doesn’t mean that you can’t perform an inspection before closing; it just means that you can’t easily back out of the sale if the inspection uncovers any issues. 

5. Apply for the Loan

Thanks to your competitive stance, your offer has been accepted by the seller. You’re now ready to formally apply for the mortgage loan. The good news is that if you’ve already gone through the preapproval process, the actual application process will be a lot easier since it involves a lot of the same information. 

Be prepared to provide updated versions of financial documents, including your bank statements, pay stubs, income statements, and other account statements like tax returns. Your lender will use these to make sure that your financial situation hasn’t changed since you received the preapproval for your loan amount.

6. Go Through the Underwriting Process

Now that your official loan application has been submitted, it goes through what’s called the underwriting process. During this process, the lender verifies all the information on your application. They do this by calculating your debt-to-income ratio (DTI ratio), your loan-to-value ratio (LTV), and running your credit again to make sure that you indeed meet requirements. 

Most lenders want to see a DTI below 36%, including housing-related costs, an LTV below 97%, and a credit score above 640. However, some lenders are more flexible, whereas others may have stricter requirements. 

7. Close on the Loan

If everything goes well during the underwriting process, your loan application gets approved, and you receive clearance to close on the home. At closing, you will finalize your loan documents, pay your down payment and closing costs, and transfer ownership of the home. Finally, you receive your keys and can start moving in. 

Mortgage Convenience with Vaster 

Before you even begin your home search, it’s a good idea to get prequalified so that you know what you can afford. For a quick overall process from prequalification to preapproval to closing, work with a private lender like Vaster.

Reach out to our lending experts today to get the process started. 

More questions on interest rates? Check our FAQs page

 

Sources:

Get a Mortgage Prequalification | NerdWallet

Prequalified vs. Preapproved: What's the Difference? | Experian

Underwriting Definition | Investopedia

14 Tips For Choosing The Right Real Estate Agent For Your Property Search Or Sale | Forbes

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