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Why prequalify for your mortgage? 4 reasons to get preapproved

By Shelley Sines

January 2018
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While it may seem intimidating to prequalify for a mortgage loan, its a great first step when you’re just beginning to shop for a home. You wouldn’t bake a cake without making sure you have all the ingredients first, right? (Unless you’re me, literally every time I try to bake anything. Luckily I have really nice neighbors with well-stocked pantries.)

According to the Consumer Financial Protection Bureau (CFPB), a prequalification (sometimes called a “preapproval”) from a lender is a letter that specifies how much the lender is generally willing to lend you. The lender typically arrives at that number after evaluating your assets and debt and checking your credit.

The prequalification or preapproval process varies from lender to lender, but should result in a conditional commitment in writing. This letter isn’t a guaranteed loan offer, but having it in hand can give the seller confidence that you’ll be able to get financing to buy the home. And if that isn’t enough incentive for you, here are 4 more reasons why you should get prequalified early in the home-shopping process.


1. Peace of mind

There’s plenty to stress about when you’re home-shopping, so get your prequalification out of the way first. Instead of agonizing over the state of your finances, you’ll have peace of mind knowing you’re already approved. Put that energy toward worrying about how friendly the neighbors seem, or deciding whether or not you can live with that red shag carpet in the basement.

2. A competitive advantage

It’s a sellers market, and that means you may need extra ammunition if you want to place an offer on a decent home in a desirable location. A prequalification not only makes your offer credible, but also affords you an advantage should you submit an offer at the same time as another home-shopper. A prequalification could be one of the deciding factors in the seller accepting your offer over another.

3. Know what you can afford

Even if you’ve crunched the numbers yourself, it pays to meet with your lender, lay out all your finances and determine what you can really afford. This will save you time, energy and potential disappoint if you find out you’re home-shopping at too high of a price point before you make your offer (or conversely, perhaps you can afford more than you realize). And getting prequalified can be a good way to spot potential issues with your credit before you make a serious offer on a home.

4. A confidence boost can mean better negotiation skills

Now don’t get too cocky, but being prequalified for a mortgage loan should help you feel more assertive as you’re home-shopping, especially if you’re a first-time homebuyer. No imposter syndrome here. Do you like those light fixtures? Make sure they’re in your offer to buy! Why not ask for everything you want — you’ve been prequalified, and that’ll carry some serious weight with the sellers.


Amy Wallow

Very informative

Cindy Ann Carlson

Getting pre-qualified was an important part of beginning my home buying journey

June Sego

I feel that everyone needs to be educated with financing before purchasing a home. It takes a lot of stress away and boosts confidence by getting prequalified for a new home.

Lean

I like the simplified explanations, but I fear it is over-simplified and may seem misleading. Also, as I am reading more and more on this, I feel you are using, interchangeably, two distinct concepts-- Pre-qual and pre-approval. They are not the same!

Liz Keuler - Readynest editor

Lean, thanks for your comment! In researching this post, Shelley found that the distinction between pre-approval and prequalification is less clear than it used to be, as lenders often have their own definitions. As the CFPB recommends, homebuyers should confirm with the lender that, whether they call it a pre-approval or a prequalification letter, it provides enough information for sellers to take it seriously.

Jennifer Lucio

I want to buy a home

William Morreau

My name is William my fiance is currently renting which is way more than a mortgage. I currently have a stepson at home and only two bedrooms. We could use the extra space for family gatherings and any guest. I generally go out of town to visit family considering I do not have the space however, pay the price to own a home. I have had break end attempts and car damage which doesn't sum up renting at all. I would like a place to call home and have family. I want a place to retire and enjoy.

charles stacy

sold our house..temporarily renting until we found our next house

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Shelley Sines has been writing for MGIC since she graduated from college in 2007. Currently raising a sweet little family with her husband in the suburbs of Milwaukee. Happiest when cooking or gardening. Competitive Scrabble player. Enthusiastic about road trips, wine, good TV.