Being a first-time homeowner is an exciting and sometimes stressful time. Luckily, there are steps you can take to lower the chances of stressful situations. One of them is getting pre-qualified for a mortgage.
What is Mortgage Pre-Qualification?
Financial companies can provide pre-qualifications to individuals or couples interested in securing a home mortgage. This means they will take a look at your financial situation and provide documentation stating that you could qualify for a mortgage. This does not mean that you have been fully vetted for a specific mortgage, but is an indicator to sellers that you have the potential to successfully secure a mortgage.
Why Would I Want to Get Pre-Qualified?
Getting pre-qualified shows home sellers that you are serious about buying a house. It shows that you have taken a step toward becoming a homeowner by connecting with a financial institution and understanding your mortgage potential. This is particularly helpful when it is a "seller's market." During times like these, sellers receive multiple offers at once, so it never hurts to have a little something to give you an edge over other buyers. A pre-qualification could make you stand out from a crowd of offers because the seller feels more comfortable that your offer will actually go through. When a seller accepts an offer there is a time period where the house is no longer on the market but it hasn't yet sold. During this time period many things can happen to stop the sale from going through, one of those being that the buyer is not able to secure a mortgage. Having a pre-qualification letter can help put a seller's mind at ease during this waiting period of the transaction.
What is the Pre-Qualification Process Like?
A financial institution will collect your information and conduct a background check as well as verify your income and work status. This will help them get a picture of your buying potential. If you are pre-qualified, you will receive a pre-qualification letter. This is the document that you can share when putting in an offer on a house. Some real estate agents might even ask you for this prior to working with you. You don't need to worry about being pre-qualified by multiple financial institutions. One is just fine. Though when applying for a mortgage, you might want to seek multiple options.
Does This Mean I'm Guaranteed a Mortgage?
Not quite yet. Getting pre-qualified is a great first step toward home buying. It shows that you are a good candidate for a mortgage and that you aren't wasting the time of a realtor or home seller. But it doesn't mean that you are guaranteed to receive a mortgage.
When you are ready to move forward with a purchase, you will go through a more extensive mortgage application process. With changing factors like your own income and expenses, as well as rising and lowering mortgage interest rates, financial institutions need to review things like mortgage applications in a timely manner.