Buyers interested in purchasing a home will often choose to go through the mortgage prequalification process to determine if they will qualify for a loan or to find out what roadblocks could prevent them from qualifying. Attaining a mortgage prequalification means that a buyer has all the necessary components in place to move forward with a home purchase. Some of those components include a good credit history, steady income, a low debt-to-income ratio and money for a down payment, among other things.
Going through the prequalification process is the right decision for a buyer who wants to make sure they are ready to purchase a home and can qualify for a loan. Sometimes a buyer who is interested in taking out a mortgage will be unable to because of financial issues. Waiting until the very end of the process can mean lost money in fees as well as wasted time, only to find out the lender won’t grant a mortgage.
The prequalification process allows buyers the time to look into financial aspects that a lender will examine when considering a loan. This includes running a credit check, looking at a buyer’s history of repayment on other borrowed amounts, and checking tax records and business accounts. During the prequalification, a buyer will learn if there are issues that need to be dealt with before being eligible for a loan. This can save a lot of time and money in the long run and is an option for those seeking to find out their mortgage eligibility.
Prequalifying for a mortgage is not the same thing as qualifying. Prequalifying gives lenders a good idea of a borrower’s buying power and what loan amount they can reasonably repay.
Mortgage lenders like to know that the buyers they are lending money to are not at risk of default. The prequalification process makes it easier for a lender to see all the necessary financial details up front. For example, holding down a steady job for more than two years looks good to a lender. If a buyer has had past credit issues, such as a bankruptcy or foreclosure, but has had them cleared up for a few years, a lender will take that into serious consideration as well.
Although not every borrower chooses to go through the prequalification process, the merits it affords are many, especially for buyers who have had some financial issues in the past. Additionally, if there is anything that needs to be dealt with that the buyer did not know about, the prequalification process will help point those things out so they can be addressed before applying for a mortgage.