By: Cindy Eshuis, Sr. Mortgage Loan Officer - NMLS# 441579
5/20/2024
When you are getting ready to buy a home, whether it’s your starter home or your forever home, there are many things to consider and prepare for: weighing wants and needs and choosing the right location, size, and of course, price. However, finding a home that fits into your price range is more than simply making a few budget calculations. In order to put in a compelling offer, you’ll need to show evidence that you can get the funding to make the purchase.
Prequalifications can help take the guesswork out of setting your budget and are an essential tool in hunting for the right home and making an offer when you find one.
In this post, we’ll explore the prequalification process and its circumstances, timeline, and process. Keep reading to learn more about how to navigate the early mortgage application process!
What does getting “prequalified” mean?
When you first start looking for homes, your realtor may suggest that you obtain a “prequalification” or a “letter of prequalification.” Prequalification is an important part of determining your housing budget and can help your realtor set parameters for their search. Though it can give you an estimated budget to work with, it’s not a binding agreement and in no way guarantees approval for an actual home loan or loan amount.
When you opt for a mortgage prequalification, you're essentially providing your lender with a snapshot of your financial situation. This includes details such as your income, assets, and debts. The lender may also conduct a brief credit check. Based on this information, they can give you an estimate of the mortgage amount you may qualify for, and are a useful initial step in the home-buying process, helping you set your budget and start exploring mortgage options.
How do you get prequalified?
Either in person, over the phone, or through your lender’s website, you’ll provide details about your financial picture to your lending institute, including:
- Your household income and members of your family
- Your debts and liabilities
- Bank account balances and other assets
The lender will usually credit check, then use all the gathered information to work on an estimate of how much you can borrow based on your current financial situation.
Once the process is complete, you will get a prequalification letter to show to your real estate agent, giving an approximate estimate of how much you may be approved for.
Prequalified vs. Mortgage Application
A prequalification does not guarantee approval for a mortgage. Once you’ve made an offer on a home, you still need to get approved officially for the mortgage.
Mortgage approval has additional steps, including the home passing the inspection and appraisal process. However, if you’ve been prequalified beforehand, the mortgage approval will move much faster since we have a better understanding of your financial situation and what product best fits your needs. During this time, you’ll want to be sure to make no major changes to your financial picture, from acquiring new debt to spending down assets, as this could result in a rejection of your application.
Why go through these steps?
Prequalification is an additional step in an already complex process, but completing it can benefit homebuyers, especially in competitive housing markets.
Obtaining a prequalification can help you:
- Streamline your search. Know what you can afford and focus on the right homes.
- Make more attractive offers. Sellers take you more seriously when you're prequalified.
- Enjoy a faster closing. Prequalification can speed up the closing process since much of the financial vetting is already done.
Choosing Your Lender
Getting a prequalification from a lender can be an important part of the mortgage application process, allowing you to:
- Ask Questions: A good lender will help you understand the process and your options.
- Consider Lender Reputation: Our Peoples Bank Mortgage Experts help ensure a smooth closing, a lower-stress homebuying experience, and ongoing lender support. We have a great track record for customer service and reliability.
Know that if lenders that you get prequalified with have to pull your credit score as part of the process, you have 45 days to obtain additional credit inquiries after you submit your first, and credit reporting agencies will only count it against you as a single inquiry. It’s also important to be aware that your credit pull and prequalification may generate trigger leads, which could lead to genuine offers and scams.
As you prepare to start your prequalification application for purchasing a home this year, understanding the current real estate market dynamics is crucial. Here are several key tips to navigate these waters effectively:
- Be Prepared to Act Quickly:
- Prequalification is Crucial: With interest rates subject to significant fluctuations and housing inventory varying greatly from one area to another, having your financing in order before you start house hunting is more important than ever. Being prequalified for a mortgage positions you as a serious buyer and enables you to act swiftly when you find the right home.
- Watch Expiration Dates: Keep a close eye on the validity period of your prequalification. Missing an expiration date can delay your purchasing process or, worse, cost you a potential home.
- Deeply Understand Your Local Market:
- Tailor Your Strategy: Conditions such as the number of homes for sale, the average days on the market, and selling prices can differ dramatically by location. A thorough understanding of these factors can help you tailor your approach effectively. In highly competitive markets, sellers may favor buyers who are prequalified as it suggests a higher likelihood of transaction success.
- Research and Resources: Use local real estate reports, online tools, and your realtor's insights to gather detailed information about the market conditions in your desired area.
- Maintain Flexibility:
- Adapt to Market Shifts: The real estate market is dynamic, with changes influenced by economic policies, local developments, and national trends. Staying informed through reliable real estate news sources and regular updates from your real estate agent will help you adapt to any shifts.
- Seasonal Variations: Be aware of the seasonal cycles in real estate. Generally, inventory peaks during the summer months, which also tend to attract the most buyers. This can affect both availability and prices. Planning your search accordingly can give you an advantage, whether it's finding more options or negotiating a better deal during off-peak times.
By following these guidelines, you'll be better equipped to navigate the complexities of the 2024 housing market and increase your chances of finding a home that meets your needs and budget.
Start your home-buying process with the Peoples Bank Mortgage Experts!
Curious about how much you could get prequalified for? Peoples Bank is here to help!
Visit our Mortgage Resource Center or contact one of our mortgage lenders today with questions or to start your home-buying journey. When you’re ready to apply, our online application process is fast and easy—and we’re always happy to assist!
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