There are so many buzzwords out there in the homebuying world that it can be hard to keep up! One such word – pre-qualification – tends to pop up frequently, and for good reason. The process of obtaining a mortgage on a home requires an in-depth review of your financial history, which has a direct impact on how much house you can afford and the interest rate you’re eligible for. Laying out these facts early on in the process is so important to ensure you’re looking at houses that are affordable for your specific financial situation.
What Does Pre-Qualification Mean?
To become pre-qualified, a lender will take a high-level view of your financial history, including your credit history. Using this information, your lender can tell you which mortgage programs may be a good fit for you and give you a ballpark estimate of the amount of house you can afford. He or she can also provide an estimate of the monthly mortgage payment based on the price of the homes you’re considering. Having this information before you become immersed in the home search is beneficial to you as a buyer, but also to sellers since they will know you are a serious buyer and have already done your homework.
What are the Benefits of Pre-Qualification?
There are several benefits of pre-qualification, namely, having a foundation for your home search to be built upon. Additionally, the benefits include:
- Having a specific budget in mind before looking at homes. The worst thing you can do is start looking at houses before realizing what fits within your budget. Avoid getting your heart set on a specific house until you know if you can afford it!
- Showing the seller you’re a serious buyer. When the market is very competitive, anything you can do to get an advantage over other buyers is key. If you can show the seller and their agent that you have your ‘ducks in a row,’ they will have confidence that you’ll be ready to move the process along if they accept your offer.
- Seeing how you can improve your financial background. Perhaps you submit your information to your lender, but then find out you aren’t able to afford as much as you anticipated. Don’t give up – instead, use the information as learning tools and dig deep to improve your financial situation!
Ultimately, getting a pre-qualification before starting the home buying process can only help, not hurt. Not only can it speed the buying process along, but it can paint a realistic picture of your home budget so you can focus on searching for homes that meet your specific needs.
What Do I Need to Become Pre-Qualified?
As mentioned above, pre-qualification is a higher-level view of your financial history. It will require you to provide certain financial details that will help your lender determine how much house you can afford. It’s important to note that sometimes you’ll be pre-qualified for an amount that is higher than you’re comfortable spending – so just because you are pre-qualified doesn’t mean you have to stretch your budget to that point! To get pre-qualified, you’ll need:
- Your income information – your annual salary or compensation
- A credit check – your lender will pull your credit history and score from the credit reporting bureaus
- Bank account information – how much money you have in the bank
- Down payment – how much cash you have on hand to put down on a new home
Once your lender has all of this information, he or she can pull together an estimate of the home price you can afford, along with the mortgage options that will work best for your needs. This will give you a great starting point for your home buying journey and allow you to pinpoint exactly the type of homes that will work for you!
Getting pre-qualified is just the beginning of your home buying journey. At C&F Mortgage, we are focused on you every step of the way and our local industry experts are here to make your home buying dreams a reality. Get started with our team today!