In most cases, you get prequalified for a mortgage online over a verbal discussion.
If you are going for a property purchase and desire to apply for a loan, you are likely to come across the term prequalification of the mortgage. Prequalification of mortgage is considered as an initial step in your journey of buying a property.
Since this is a process, you need to provide your lender with relevant information.
Once you prequalify, you are given a reality check of how much money you are eligible to borrow from your lender.
This prequalification of the mortgage process can take place either in the online or the offline mode.
A conversation occurs then between you and the person you wish to borrow money from.
The money lender is generally a bank executive who engages in interrogation, and if you can provide genuine answers, the lender will move forward to your document verification.
On completion of that, you are finally eligible, and the lender will suggest to you the loan and mortgage scheme which would suit your current financial situation.
Now that you know the meaning of prequalification, you already have the upper hand in this field.
What Is Prequalification of Mortgage?
Prequalification of mortgage acts as a stepping stone for your property acquisition.
When you plan to buy a property, you generally opt for a loan. But the lender will give you a loan against some asset of yours which will be of an equivalent value to the amount you borrow.
This is done because if you fail to repay the loan due to any circumstance, the mortgaged asset will act as compensation.
The mortgaged assets are decided upon your financial condition, credit score, and employment status.
When you apply for the prequalification of a mortgage, you also get enlightened about the various mortgage options that you can opt for. You can discuss the same with your preferred lender and opt for the right mortgage that suits your requirements.
How Do You Get Prequalified for a Mortgage Online?
To get prequalified for a mortgage online, you need to supply the lender with your authentic documentation containing your tax records, pay stubs, and proof of assets in your name.
As soon as the lender approves your financial information, you will be sent a letter stating that you are prequalified for the online mortgage. But this approval by the lender may take a few days. After you get the prequalification letter, it can be shown to any seller or real estate agent. This letter would act as proof that you are now eligible to buy the property.
How long does it take to prequalify for the mortgage?
Prequalification of a mortgage is generally a quick procedure.
If you submit all the required documents verified and declared authentic by the lender, you can get prequalified for a mortgage online in as little as one business day.
But usually, it takes a few days that can also become a few weeks for your mortgage to prequalify.
In addition, if you receive an audit in your income or if you have to undergo other document verification errors, then it might take even longer.
What Information Should You Provide to Get Prequalified for a Mortgage Online?
To get your mortgage prequalified, you need to supply the lender with much information not to reject your application.
First, you need your income information along with your proof of income.
Second, you need to portray your credit check, which should be a minimum above six hundred.
A credit score above seven hundred and forty is considered very good. Third, you need to provide basic information about your bank accounts. That will work as a significant drawback if you have any delinquent accounts.
You also need to state the amount you are willing to down payments and a desire to keep a mortgage.
Also, if you are paying from a gift that you have received, you need to provide proper documentation for the down payment amount.
The tax information is generally not required to get prequalified for a mortgage online, but that depends on the lender.
If he demands to see your tax slips, generally of the past two months, you need to show them.
What Is Pre-approval?
Pre-approval can be called the step where you are getting confirmed about your creditworthiness, but you did not sign any contract yet.
In the pre-approval stage, you decide upon the amount you keep as mortgage and provide the required documents to the lender for approval.
The lender then verifies your documents, and along with this, they also scrutinize your credit check.
After verifying all the documents, you qualify and are pre-approved by the lender.
Following this declaration, you receive a letter of pre-approval. This letter has to be considered an offer and not a commitment from the lender’s side.
With the help of this letter, you are eligible to lend a specific amount for ninety days.
Prequalification or Pre-approval- Which Is Better?
Both prequalification and pre-approval are extremely important for purchasing a property.
Both are intelligent steps to take when you are planning to purchase a property.
When you request prequalification or pre-approval, it gives the sellers an impression of how serious you are about purchasing the property.
It also offers you a general idea of how much you can keep a mortgage.
But, prequalification or pre-approval is different from each other in various ways.
Prequalification helps you understand the amount you are eligible to borrow when you start looking for properties in the initial stage when it comes to benefits.
On the other hand, pre-approval helps you gain a competitive advantage to make offers with confidence.
Let’s compare the process of prequalification or pre-approval. Prequalification quickly provides the lender with your basic information so that you are quickly eligible to obtain a prequalification amount.
But the process of pre-approval is not so quick.
First, you need to submit the documents to your lender and patiently wait for verification.
You are likely to get the lender’s response in around ten business days. Let’s talk about the documents required, prequalification or pre-approval.
The former only requires you to answer a few questions concerning the prequalification process, and you are asked to show your credit check. But for the latter, a variety of documents are required, such as all the documents of your financial details, along with proof of all the documents.
Their verification also requires a lot of time.
Pre-approval is essential when you need to make an offer for the property you choose, keeping in mind the competition in the market. But if you are a first-time property buyer, then if you get prequalified for a mortgage online, that will be more beneficial.
Prequalification helps you determine your budget and provides you with a reality check of how much you are eligible to borrow.
Hence, if you are a first-time property buyer, getting prequalified for a mortgage online is more significant for you.
Best Ways to Get Prequalified for a Mortgage Online
These are the five best ways to get your mortgage prequalified very fast.
Firstly, you need to have accurate information about your credit score. You need to identify your position before seeking out a loan request to a lender.
The higher is your credit score, the better impression you put on your lender and the more likely you get prequalified for a mortgage online.
Secondly, it is vital to keep a check on your credit history. Keeping copies of your credit report will help you analyse your credit history in a better way.
It will also eliminate any errors from occurring while you calculate your credit score.
Furthermore, keeping a check on your credit report will also help you notice any delinquent account you possess.
Hence, you can solve the issues of your faulty account before you apply for the prequalification of your mortgage.
Thirdly, consider your DTI ratio. This DTI ratio stands for debt to income ratio and refers to the percentage of the gross monthly income you spend on paying your debts.
These debts payments may include car loans, educational loans, and credit cards. The less diverse your DTI ratio, the more suitable you can get a prequalification for a mortgage online.
Fourthly, you need to have accurate personal information, and up-to-date financial account and a constant source of income.
When you apply to get prequalified for a mortgage online, you need to submit a lot of documents that contain your personal information, your tax slips, your payslips, your employment details, as well as your permanent address, along with your social security details.
If you are employed for two straight years, you might not get approval for the prequalification.
Also, you need to show the documents of your income tax returns for the past two years along with your income proof.
You need to show proper paperwork and prove your ownership if you own assets that you have got as gifts.
Finally, it is preferable to contact more than one lender at a time. When you are going through the mortgage process, it is going to be a procedure of an extended period.
In scenarios like these, it is always beneficial to compare the rates of various lenders, as that could save your money.
Does Prequalification of Mortgage Affect Credit Score?
Often, you tend to be worried about the status of your credit score after you have just applied for prequalification.
But, you need not worry since the prequalification of a mortgage does not affect your credit score.
However, your credit score might come into consideration when the lender determines how much you are eligible to borrow.
When you inquire about prequalification details, your credit score will not be affected unless you opt to apply to the prequalification procedure via the credit score.
If you do so, then the lender will thoroughly inspect your credit report. If you are considered a decent prospect based on your credit report information, you will only be approved for the loan.
Does Prequalification Make Your Mortgage Approved?
This is a misconception that you will get approved for a loan when you get prequalified for a mortgage online.
But the reality is something else. When you are getting prequalified, it means that the lender has just made up his mind and is most likely to approve your loan, which will be up to a certain amount.
The lender will decide this amount after verifying your current economic situation. Thus, getting prequalified is not equivalent to getting pre-approval.
So if you want to get prequalified for a mortgage, you need to focus on various factors such as maintaining an excellent debt-income ratio, having delinquent free bank accounts, needing a permanent address and a fixed source of income.
Keeping a check on your credit history will help you improvise your credit score.
However, the credit score is not considered very important when prequalifying the mortgage unless you apply for the mortgage through credit score.
Pre-approval and prequalification are often considered synonyms, but they have striking differences.
They have prominent differences in benefits, processes, and the documentation required for each of them.
Prequalification is a much faster and more straightforward procedure.
Hence, we can conclude by saying that the significant benefit you achieve by getting prequalified is getting a reality check of how much you are eligible to borrow from the bank executive or the lender. Therefore, despite all the merits that pre-approval possess, getting prequalified for a mortgage online is advantageous for you if you are buying for the very first time.