The Prequalification Process

To begin the pre-qualification process, the buyer provides the lender with basic financial information. If you need help selecting a lender, ask your Realtor for advice. Sometimes your best choice is the bank you deal with regularly but for other buyers a particular credit union or mortgage lender might be a better idea.  There are too many variables to provide a one-size-fits-all answer here.

Basic financial information means facts about the buyer's

  • gross pay before taxes and deductions,
  • savings and other liquid assets available for the down payment and closing cost
  • debts, including installment
    • payments on outstanding loans,
    • school loans,
    • credit card debt,
    • personal loans and
    • other home loans.
  • credit history and rating.

Factoring both the lender and the borrower data, the lender will find produce a payment amount that the buyer can handle and that payment will dictate the maximum loan amount that buyer can qualify for. The lender tells the buyer how much the buyer will need for a down payment on the type of loan you’re applying for, and estimate the closing costs.  With this number in mind as a ceiling each buyer selects a budget that fits into his or her lifestyle to establish a budget for home showing.

The lender will take a look at a number of factors to determine the cost of money for the buyer.  In addition to information specific to the buyer, the lender must consider

  • the interest rate of the mortgage,
  • the term of the mortgage (15, 20 or 30 years)
  • type of loan
    • conventional
    • VA
    • FHA
    • VHDA.


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What is pre-qualifying and what does it mean?

At the request of borrowers, mortgage lenders will pre-qualify, or pre-approve, potential buyers prior to applying for a mortgage on a specific property. Lenders calculate a borrower's financial ability to make monthly payments, and pre-qualifying helps the lender make safer loans and the borrower to shop for a house within his means. By knowing ahead of time the amount of loan you can qualify for takes much of the mystery and guesswork out of the home-buying process, and may strengthen your bargaining position with a seller.
Unless you're paying cash for your next home, you'll have to get a mortgage. For most home buyers the limits set by that mortgage and the requirements to get mortgage will to frame most of the choices that buyer will have on the home purchase. For this reason the very first step any buyer should take is to get a mortgage pre-qualification.

To get a mortgage pre-qualification, the buyer provides the lender with basic financial and income information. That information is used to calculate the amount that lender thinks the buyer can borrow based on the buyer's income, down-payment and overall financial situation. A pre-qualification is an important first step to home shopping but a prequalification is not the same thing as a mortgage pre-approval. A pre-qualification is a basic screen based on many assumptions. A pre-approval is a comprehensive look at financials, documentation and other representations for a determinative statement of what the lender can borrow.