Find out how much house you can borrow before you start looking – and how you can make the strongest offer possible on the property you choose. If you’re ready to make your dream of owning a home a reality, you’ve probably already heard that you should consider getting prequalified or preapproved for a mortgage. It’s time to understand exactly what each of those terms means and how they might help you. And when you’re working toward a goal this big, you want every advantage. You may qualify to borrow more money than you are comfortable spending on a home. But that doesn't mean you have to spend more. It's a good idea to limit
your home search to houses priced at an amount you can comfortably afford. Explore the mortgage amount that best fits into your overall budget by using Bank of America's Home Affordability Calculator. Prequalification is an early step in your
homebuying journey. When you prequalify for a home loan, you’re getting an estimate of what you might be able to borrow, based on information you provide about your finances, as well as a credit check. Prequalification is also an opportunity to learn about different mortgage options and work with your lender to identify the right fit for your needs and goals. What is mortgage preapproval?Preapproval is as close as you can get to confirming your creditworthiness without having a purchase contract in place. You will complete a mortgage application and the lender will verify the information you provide. They’ll also perform a credit check. If you’re preapproved, you’ll receive a preapproval letter, which is an offer (but not a commitment) to lend you a specific amount, good for 90 days. Homebuyer tip:Expect surprises! Lenders look at every detail of your finances when granting preapproval. You might be asked about a car loan payment you made with a credit card, for example. Be prepared to answer lender questions as soon as they come up.
How long does prequalification or preapproval take?Aside from their distinct roles in homebuying, prequalification and preapproval can take different amounts of time. Prequalifying at Bank of America is a quick process that can be done online, and you may get results within an hour. For mortgage preapproval, you’ll need to supply more information so the application is likely to take more time. You should receive your preapproval letter within 10 business days after you’ve provided all requested information. What information do I need to provide?
Which is right for me?First-time homebuyers are more likely to find that getting prequalified is helpful, especially when they are establishing their homebuying budget and want an idea of how much they might be able to borrow. Preapproval can be extremely valuable when it comes time to make an offer on a house, especially in a competitive market where you might want to stand out among other potential buyers. Again, a seller will be more likely to consider you a serious buyer because you have had your finances and creditworthiness verified. PREQUALIFICATION VS. PRE-APPROVAL COMPARISON
Prospective homebuyers know the importance of "location, location, location," but timing can be critical too. Securing mortgage preapproval at the right moment in your house-hunting journey can help seal the deal, preserve your credit and spare you unnecessary expenses. Here's the lowdown on when to seek preapproval. The Best Time to Get Preapproved for a MortgageProviding a copy of a mortgage preapproval letter with a purchase offer can indicate to a prospective seller that you have the financial means to follow through on your bid. While preapproval is an optional step in the home financing process, it can be a practical necessity in highly competitive housing markets, especially if rival buyers are able to pay in cash. It's important to arrange mortgage preapproval only when you're serious about making an offer on a home. Getting preapproval too early in the house-hunting process can be wasteful for the following reasons:
It's also possible to apply too late for a mortgage preapproval. It typically takes only a few days to generate a preapproval letter, once you've submitted all necessary documentation (more on that below). If you're self-employed, have a very limited credit history, or if the lender has questions about any of your back-up documentation, however, the process could take as long as two weeks. Gauge your circumstances accordingly, and don't wait to apply for preapproval when you're already rushed to bid on the ideal property. If you're still in the early stages of house hunting and are curious about how much you may be able to borrow, consider seeking mortgage prequalification. Prequalification is a less rigorous process than preapproval during which a lender estimates the size of mortgage you might be able to get based on your credit and your responses to a few questions about your income, available down payment and debts. How to Get a Mortgage PreapprovalSeeking mortgage preapproval from a lender is very similar to submitting a mortgage application. The big difference is that, unlike a mortgage application, preapproval doesn't apply to a specific property. Based on a review of your credit and finances, including your credit and income history, debts and, possibly, other assets or sources of cash, the lender issues a letter indicating how much it is willing to lend you to buy a house, and at what interest rate. When you apply for mortgage preapproval, you'll need to furnish the lender the following items:
Check Your Credit Before Getting PreapprovedWell before you begin the homebuying process—ideally six months to a year before you seek mortgage preapproval or apply for a mortgage—it's wise to check your credit report and credit scores to know where you stand, and to give you time to clear up any credit issues that might prevent your credit scores from being the best they can be when you're ready to buy your new home. Mortgage preapproval can give you an important strategic advantage when you're buying a home in today's red-hot real estate markets. Correct timing of your preapproval application is an important tactic in your homebuying game plan. How far in advance should I get preThe best time to get pre-approved for a mortgage is at least one year before you decide to purchase. As a home buyer, pre-approvals are for your benefit, so it's never too early to get one. Getting pre-approved early is an advantage because one-third of mortgage applications contain an error.
Do I need preThe Bottom Line: You Can Look at a House Without Preapproval
As noted, it's not necessary to have a mortgage preapproval letter in-hand to look at potential homes to purchase. But a preapproval letter is still worth getting if you're serious about becoming a homeowner.
Is it better to be preapproved or prequalified?Prequalification tends to refer to less rigorous assessments, while a preapproval can require you share more personal and financial information with a creditor. As a result, an offer based on a prequalification may be less accurate or certain than an offer based on a preapproval.
Is getting prequalified for a mortgage a hard inquiry?Yes, a pre-approval is a hard inquiry. Applying for a pre-approval through a mortgage lender is a standard step in the mortgage approval process because it involves lenders looking at more detailed information. Because lenders give loans for large amounts of money, hard inquiry credit checks are routine.
|