Visiting open houses in your dream neighborhood is a fun way to spend your weekends, but it won’t get you closer to your goal of buying property. When you’re serious about purchasing your first home, you need to know how much money you’ll have to spend. That’s why you should talk to a lender and get prequalified or preapproved for a mortgage loan.
The lender will perform an initial evaluation of your creditworthiness. Provide your income, debt and other relevant financial details, and the lender will crunch the numbers to figure out how much money you might be able to borrow. Of course, the lender hasn’t confirmed any details of your financial situation, so the prequalification number is just a rough estimate.
A step closer toward a mortgage application, loan preapproval means you go through the full mortgage-application process. Fill out the paperwork, and the lender verifies your income, employment history, credit report and other details. Then the lender will decide what interest rate you’re eligible for and how much you could borrow.
Does that mean I have a loan?
Being preapproved or prequalified for a mortgage loan doesn’t guarantee anything. You still could fail to secure a mortgage loan for your desired amount or terms. However, both processes let an expert give you a sense for how much money you could have to work with. And a buyer with a prequalification or preapproval letter from a lender may be more appealing to sellers.