A mortgage prequalification, sometimes called a “bank draft,” is an appraisal of your financial potential at a specific property. (Even if your bank or other lender does not require it, many real estate agents do.) A mortgage prequalification helps you avoid the last-minute scramble to qualify for a mortgage. It helps you understand what your mortgage amount may be and how much money you might need. A mortgage prequalification helps you focus on the amount of home you are really seeking.
How does a mortgage prequalification work? A mortgage prequalification allows you to quickly compare what you might actually qualify for in a home loan with what you are really looking for. Your pre-approved amount is based on your lender’s best estimate of your mortgage payment risk. A bank draft or letter of acceptance lets you know the exact figures that are used. This letter is good while your application is under review, but if you submit an acceptable mortgage payment estimate on its own, the pre-approval no longer counts.
Sometimes, lenders will use a mortgage prequalification letter along with an appraisal in order to obtain mortgage approval. A pre-qualification gives you time to negotiate loan terms with your lender so that your terms and conditions match your best financial position. Lenders also use pre-qualifications to evaluate loan applicants to determine whether they will qualify for the mortgage amount and also to make sure that their credit score and debt to income ratio will support a loan request.
Mortgage lenders are required by law to perform credit checks on mortgage applicants, but they do not always use the same credit check programs as traditional lenders. Some lenders will conduct a thorough credit check, whereas others will only run a simple credit check. It is important to understand the difference between these two types of credit checks when trying to qualify for mortgage preapprovals.
Many mortgage prequalification letters are standard length. However, many lenders will provide additional information on their websites to help you better understand their prequalified requirements. Mortgage lenders can require a borrower to fax or mail in additional documents, such as pay stubs or tax returns. This additional documentation is necessary to confirm employment and other important financial facts. If a lender requires additional information, such as verification of sources of income, then it is probably a good idea to contact your lender directly to find out exactly what information they require in order to complete your mortgage prequalification.
The majority of lenders that provide mortgage prequalification require borrowers to supply them with a short list of personal, business, and financial details. You will probably need to supply your full name, current address, mailing address, social security number, and driver’s license number. When you submit this information, it is not necessarily passed on to another party. It is passed along within the mortgage industry between lending institutions and homebuyers as a sort of pre-qualification requirement. Lending institutions are required by federal law to turn over this information to any buyer who seeks a home loan. In order to get quick estimates of how much house you will be able to afford in your first home, it is advisable for prospective homebuyers to know the exact level of mortgage prequalification they need to meet.
If a lender does not ask you for specific details, such as an exact income level or credit score, then it is likely that your lender will not use this information to determine underwriting qualifications. In general, a lender will use your current credit score, current residence, and your recent expenses for a mortgage prequalification quote. If you have had bad credit in the past, it is also possible your mortgage lender will check your credit score to see if you still qualify for a mortgage. If you have had bankruptcies, foreclosures, or repossessions in the past three years, your lender is also likely to check your credit score to determine whether you still qualify for a loan or not.
Homeowners who are looking to borrow a large amount of money should get prequalified before approaching a lender about a mortgage. By getting prequalified, you will ensure that you are not turned down by a lender simply because you do not have enough money to borrow. In some cases, you may also want to compare rates from a variety of lenders, so that you can get prequalified quickly and find a good interest rate for your loan. In the end, you will have the peace of mind of knowing that if you are approved by a lender, you will not pay back more than you borrowed.