Mortgage loan pre approval, also referred to as “prequalification,” is the process of verifying your financial profile and determining if you meet certain mortgage qualifications. It’s an essential step for home buyers who want to guarantee they can afford the house they’re considering purchasing and shows sellers that you are serious about purchasing a property.
Mortgage lenders check your credit and verify your income and assets to determine if you’re eligible for a loan up to a specific amount. They’ll also perform a debt-to-income ratio (DTI) analysis, which calculates how much you pay in monthly bills and other debt obligations like student loans or credit cards compared to your gross income.
If your debt-to-income ratio (DTI) and credit score are good, mortgage lenders are likely to approve your application for a mortgage loan up to the amount set as your preapproval limit. However, if circumstances change during home purchasing, then you’ll need to go through the preapproval process again.
Preapproval does not guarantee you’ll get the financing, but it does make the loan search smoother. Knowing how much home financing you qualify for before looking at properties within your price range can save time, money and stress.
The preapproval process varies from lender to lender, but typically involves a full application and hard credit pull. You may need additional documents as well as proof of employment or income.
Preapprovals are not final, meaning you can change lenders before securing the mortgage. It’s wise to shop around before committing, though, as each lender has its own guidelines and interest rate options.
Do preapprovals affect my credit score?
Yes, but not significantly. Each time a lender checks your credit for a mortgage application, they’ll use what’s known as a “hard pull,” which may take away some points from your overall score but won’t cause any major decline.
If you’re uncertain how to proceed with getting preapproved, or need help with your credit, we can suggest a local mortgage expert who can guide you through the process. They’ll find you the lender with the most reasonable rate and terms tailored for your individual situation.
Can I apply for more than one mortgage loan at once?
Yes, you are allowed to make multiple mortgage applications at once; however it’s essential to remember that each inquiry will result in a “hard pull” on your credit. This could slightly lower your score, but as long as all applications are submitted within 30-45 days of each other, no negative repercussions will occur.
Preapproval can also help you determine the mortgages available to you, which may be helpful in your search. Government-backed loans tend to have more availability than conventional mortgages and may be suitable for first-time homebuyers or those with less-than-perfect credit who want to forgo paying a down payment.