Benefits of Prequalifying for a Mortgage

Before you pick out a house to buy, you might want to consider prequalifying for a mortgage. Many people do not bother with this process, but there are a lot of good reasons to do it.

What is “prequalifying”?

If you decide to buy a house, you might first go around looking at houses you like. After you’ve picked one out, you may visit a mortgage company to see if you can get a loan. When you get prequalified for a mortgage, you would instead contact the mortgage company first to find out how much house you can afford based on your credit, debt to income ratio, and how much of a down payment you can provide. After getting the maximum dollar amount you would be approved for, you could then go house-shopping already knowing which homes would be too expensive to consider. Bankrate states that prequalifying and preapproval are two different things. With a prequalification, your loan isn’t exactly set in stone, but the mortgage company has given you a good idea as to whether or not you will get approval for a certain amount. If you are preapproved, your loan is basically guaranteed.

Why is prequalifying for a mortgage a good thing to do?

The prequalification process is very beneficial because it takes a lot of the guesswork out of buying a home. While you’re looking at different houses, you won’t have to wonder whether or not you could get a loan for that amount — you’ll already know. If you’re prequalified, it may not take you as long to pick out a home because you’ll save time not looking at houses beyond your reach. Prequalification is also beneficial because it could prevent disappointment stemming from getting your hopes up on a certain home only to have them dashed when you discover the mortgage company won’t loan you enough money to buy it. According to MSN Money, another benefit of being prequalified is that your offer will be much more appealing to sellers. People who are trying to sell a home will feel much more secure accepting an offer from someone whom they already know has a good chance of receiving loan approval.

Before you prequalify …

Before prequalifying, you need to be certain that the lender you’re prequalifying with is the one you want to use. It’s probably best to initially contact several different lenders in the event you may be able to qualify for more money through a different company. You should also take note of the interest rates you’re offered. Chances are good that the first lender you visit won’t necessarily give you the best deal. Shop around to see what rates you can get through other companies. If you get a better rate from a different company, but you really want to do business with another company who offered you a higher rate, check to see if the company with the higher interest rate will lower it to match their competitor. There is a good chance they will just to secure your business.