How to Get Pre-Qualified for a Home Loan

Last updated 10/07/2019 by

Julie Bawden-Davis

Are you house shopping and want home sellers and real estate agents to take you seriously? Pre-qualify for a home loan first. A pre-qualification letter from a mortgage lender that states the mortgage amount you qualify for proves you’re not just a looky-loo.

“Buyers who get a pre-qualification on a loan have a leg up,” says Michael Fisher, a licensed real estate agent with Century 21 Beachside Realtors.

Besides showing that they’ve done their homework, the pre-qualification lets everyone involved know they’re serious. If there are multiple offers on a property, they’ll be more likely to get theirs accepted.Michael Fisher, Century 21 Beachside Realtors

According to this report, 11% of banks reported an easing of mortgage loan standards in Q3 of 2016. No banks declared a tightening. It’s clearly getting easier to get mortgage-approved.

Advantages to home loan pre-qualification

The process of pre-qualifying for a home loan involves supplying a lender with financial information, which the lender uses to calculate the maximum mortgage amount for which you qualify. You receive a pre-qualification letter that states how much home you can afford.

You can show the letter to sellers and real estate agents as proof that you are serious about buying and that you qualify. Knowing the loan amount you qualify for also helps you know which homes are in your price range.

In what is currently a seller’s market, pre-qualification is becoming more and more important, says realtor and attorney Bruce Ailion of RE/MAX Greater Atlanta.

Pre-approval is critical to the buyer. We are in a highly competitive market where cash buyers make up anywhere between 20-80 percent of sales. A strong pre-approval can be nearly as strong as a cash offer.Bruce Ailion

Pre-qualification versus Pre-approval

When you start shopping for a home, you may hear the term pre-qualify and pre-approval used interchangeably. These terms are similar, but not the same.

Pre-qualifying with a lender often only requires a soft credit check, which does not appear on your credit report and won’t hurt your credit score (but that’s not always the case so double check before applying). You provide the lender with certain financial information and get a pre-qualification letter that states the maximum mortgage amount for which you’d qualify.

Pre-approval goes a step further. The lender does a hard credit pull and has you complete an application. They review your finances and application and then approve you for a certain loan amount. Since this process involves having your credit checked, which can cause a drop in your credit score, it’s best to wait until you get close to buying before getting pre-approved.

Pre-qualifying for a home loan is easier than it sounds and is the first step in loan optimization, says Jon Boyd, broker/manager of The Home Buyer’s Agent of Ann Arbor, Inc.

Once you have a purchase contract, you may not have time to find the best loan. Pre-qualification allows you to get started on that investigation early in the process.Jon Boyd

Steps to pre-qualify for a home loan

Pre-qualifying for a home loan is easier than it sounds. The following steps will guide you through the process.

1. Choose a mortgage lender

You need a lender to determine how much home you can afford and to give you a letter stating this information. Check with several lenders and compare their mortgage interest rates and loan options. It pays to do your homework now and choose the best mortgage loan lender, because once you find a home you like, you’ll want to apply for loan approval as soon as possible.

Interest rates

The interest rate affects how much you’ll pay on a monthly basis, so getting the best interest rate possible is important. Look at the Annual Percentage Rate (APR) of each lender. This shows the interest rate the lender will charge for the loan and factors in most additional fees, such as mortgage points and lender origination fees.

Loan options

Most lenders offer fixed and adjustable rate mortgages. Fixed rate mortgages have interest rates guaranteed to remain the same for the life of the loan, which means you can count on the same mortgage payment. Adjustable rate mortgages (ARMs) have a fixed rate for the first 5 to 10 years and then it becomes adjustable. This means the interest rate can fluctuate over time.

Other loan types include FHA loans, which are common for first-time homebuyers and offer low down payments, and VA loans for veterans, which require little to no down payment. There are also Jumbo Mortgages for higher priced homes.

You’ll also need to decide if you prefer a 10, 15, 20, 25 or 30-year loan. The length of the loan will affect the amount of your monthly mortgage payment and how much interest you pay over the life of the loan. Shorter loan lengths mean higher monthly payments but less interest paid overall.

2. Contact your chosen mortgage lender

Ask your chosen mortgage lender to pre-qualify you. The lender will require that you provide financial information that will help them determine how much mortgage you can afford to pay each month. The information you provide will also confirm the type(s) of loans available to you.

Some lender applications call for basic information, while others will need more extensive input. There is no standard method for this prequalifying a borrower within the mortgage industry.

Although requirements vary, you will probably need to provide the lender with the following information to get pre-qualified:

• Approve a soft credit inquiry. A score of 720+ will qualify you for the most favorable interest rates.

• Payment history (included in your credit report)

• Employment history

• Amount of debt

• Amount of income and other assets

• Money available for the down payment

Read this article for a more detailed guide on how to apply for a mortgage.

3. Get your pre-qualification letter

Once the lender determines how much you can borrow and the interest rate you qualify for, most lenders will provide a letter that states this information. You can show this letter to a real estate agent looking for a home on your behalf, so he or she can guide you to homes in your price range.

You can also show the letter to sellers to show them that you are qualified and therefore serious about any offers you make. Sellers will be more likely to accept your offer when they know you’re pre-qualified.

If you’re negotiating to buy a house and don’t want the seller to know that you’re pre-qualified for more than you’re offering, ask your lender to give you a letter that coincides with the amount you’re offering. For example, if you’re pre-qualified for $375,000, but you’re offering $325,000, ask for a letter that states that you’re pre-qualified for the smaller amount.

Buying a home is an exciting venture. Make the process run more smoothly by taking the time to pre-qualify for a home loan before you start house hunting. For information on the best home loans available, consult SuperMoney’s Home loan reviews page.

FAQ on Pre-qualified for Home Loan

How to get qualified for a home loan preapproval?

For your loan representative to submit your mortgage application for pre-approval, you must provide your last two years’ tax returns and W-2s, thirty days of pay stubs, sixty days of bank account statements, and a signed authorization to order your credit report.

What is the process for home loan pre-approval?

The process of pre-qualifying for a home loan involves supplying a lender with financial information, which the lender uses to calculate the maximum mortgage amount for which you qualify. You receive a pre-qualification letter that states how much home you can afford. You can show the letter to sellers and real estate agents as proof that you are serious about buying and that you qualify. Knowing the loan amount, you qualify for also helps you know which homes are in your price range.

What is the difference between prequalifying and preapproval?

Pre-qualifying with a lender often only requires a soft credit check, which does not appear on your credit report and won’t hurt your credit score. Pre-approval goes a step further. The lender does a hard credit pull and has you completed an application. They review your finances and application and then approve you for a certain loan amount. Since this process involves having your credit checked, which can cause a drop in your credit score.

When should you get preapproved for a home loan?

The best time to get preapproved for a home is after you’ve thoroughly reviewed your credit reports and score to make sure they’re in top shape. Preapprovals are typically valid from 60 to 90 days because your credit report could change in that time.

Do you have to be pre-approved before making an offer on a house?

Real estate agents prefer showing homes to buyers with a pre-approval letter, because it shows the buyer is financially capable of purchasing. But a pre-approval letter isn’t mandatory to tour a home. All agents are allowed to show you homes, even if you do not have a pre-approval letter.

Julie Bawden-Davis

Julie Bawden-Davis is a widely published journalist specializing in personal finance and small business. She has written 10 books and more than 2,500 articles for a wide variety of national and international publications, including Parade.com, where she has a weekly column. In addition to contributing to SuperMoney, her work has appeared in publications such as American Express OPEN Forum, The Hartford and Forbes.