When you’re researching home financing options, it’s easy to get a lot of the terminology mixed up. From understanding the different types of loans to remembering the difference between a mortgage pre-qualification and a mortgage loan approval, there’s a lot of new vocabulary to understand. We get it. Buying a home can be stressful, but it doesn’t have to be. To help you start off on the right foot, we’ve created a handy checklist for the start of your journey — the pre-qualification process!
But first, let’s review what a mortgage pre-qualification is, and what it isn’t.
Pre-Qualification vs. Loan Approval
A pre-qualification is an estimated maximum loan amount from a lender. It is determined based upon your debt to income ratio, meaning how much money your household makes in a month and how much debt your household carries per month.
A pre-qualification is not a guaranteed loan amount. You are not committed to do business with the lender providing the pre-qualification and the lender is not obligated to provide a loan of any amount.
Benefits of Pre-Qualifying for a Home Loan
Once you receive a pre-qualified loan amount from your lender, you’ll have the peace of mind that you can move forward with the home-buying process. You’ll also be able to start thinking more realistically about the amount you can afford for a new home. When your lender sends your pre-qualifying loan amount to you, the information should include an estimated loan amount for your max budget, plus your estimated monthly house payment. But keep in mind, the estimated monthly house payment may change once you move into the loan approval stage — depending on the amount of taxes, interest, fees and insurance you’ll need to pay on your loan. You’ll know what your final monthly house payment is once you’ve finalized your home selection and have provided your down payment amount and your credit information.
Tips for Mortgage Pre-Qualification Prep
You should have all of your finances organized and ready to go when the time comes to provide a lender with your information. Set yourself up for success by sorting through your statements now, so it’s less stress when you’re getting it all together.
Receiving a pre-qualifying home loan estimate is easy and fast. Download and print or pin our checklist below to be ready for your first meeting with a mortgage lender.
For more information on what you’ll need to be approved for a home loan, check out the Shea Home Buying Guide.
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