Before you even look at your first house, pre-qualification is your first step.
In the excitement of entering the home-buying search, many potential buyers can end up in the dangerous spot of falling in love with their dream house only to find out they can't afford it.
There's one surefire way to avoid that heartbreak: pre-qualification.
But first, let's clarify terms: Sometimes people use "pre-qualification" and "pre-approval" interchangeably, but they're not the same.
Pre-qualification is simpler, faster, and less work. It's a process where a prospective buyer shares self-reported financial information with a mortgage lender to get a sense of what products and interest rates they might qualify for.
The word "might" is important, because a pre-qualification is not a guarantee, unlike a pre-approval. Simply put, a pre-qualification is an estimate of what a lender will allow you to borrow; a pre-approval uses your financial documents to give you an exact amount. In a competitive market, pre-approval is a more powerful purchasing tool, but if you're just getting started with your dream of homeownership, a pre-qualification is a terrific place to start.
Why You Need a Pre-Qualification
A pre-qualification can help you create a budget and a savings plan for your future home purchase. It can help you create a financial picture of how much you'd pay each month for your mortgage, as well as items like insurance, HOA fees, or maintenance.
The pre-qualification process helps a buyer get financially prepared to shop and to avoid sticker shock.
It can also help put you in a good negotiating position with the seller. Showing a letter of pre-qualification indicates you are a serious buyer who can afford the property.
When You Need a Pre-Qualification
As soon as you decide that a home purchase is in your future, your first visit should be to your trusted lender to determine how much house you can afford.
How to Get Pre-Qualified for a Mortgage
A pre-qualification is simple. It can be done with just a phone call to your lender, or an online application where you provide information about your income, assets, and liabilities, such as other loans or debt. Pre-qualification is usually determined in a day or two.
Pre-qualification is an important move toward homeownership and one that can set you up for success by helping you get a realistic sense of your budget and the cost of buying your dream house. It's not a substitute for a pre-approval, but it's a great first step on the journey toward making homeownership a reality.