How to Prequalify for a Home Loan

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Whether you’re a first-time homebuyer or you’ve been through the process before, taking the time to prequalify for a home loan is a great idea.

Doing so can help you make the most of your time during your home search and allow you to identify potential problems with your finances, employment or credit history, so you can work to resolve them early in the process.

The following guide explains when and how to prequalify for a mortgage, and clarifies the difference between prequalification and preapproval. When you’re through, you’ll have all the information you need to get started with your home-buying journey.

What is Mortgage Prequalification?

Mortgage prequalification is the process of working with a lender to get an estimate of the amount you’re likely to be able to borrow for a mortgage loan. This estimate is based on the financial information that you provide and your credit history.

Getting prequalified for a mortgage before you start shopping for homes can help ensure you’re looking at homes in the right price range. Not only will this save time, but it can also prevent you from falling in love with your dream home only to learn that you can’t afford it.

What is Required to Prequalify for a Home Loan?

If you’re a first-time homebuyer, the idea of getting prequalified for a mortgage might seem a bit intimidating. However, the process of prequalifying for a home loan is quick and easy.

You don’t have to provide any documentation. Instead, you’ll simply answer a few short questions about your finances. This will help the lender make sure you meet their minimum requirements and that you’re eligible for the home loan you’re trying to prequalify for.

While you don’t have to provide the lender with documents at this stage, gathering a few items ahead of time will help you provide accurate information. Some of the things you may need include:

  • Tax returns and W-2s from the past two years
  • Statements for your savings and investment accounts
  • Your most recent pay stubs
  • A copy of your driver’s license
  • Verification of your employment
  • Your rental history (if applicable)
  • Personal information (ex. your Social Security number and address)

During the prequalification process, the lender will ask you for a summary of your total monthly income—including your employment and any other income sources—and a summary of your monthly debt payments. The lender will also do a credit check.

The credit check may or may not impact your credit score, depending on if it is a ‘soft’ or ‘hard’ check. The type of credit check run can vary by lender. 

With this information, they will be able to let you know whether you meet the minimum requirements to qualify for a home mortgage, your likely interest rate and how much you may be able to borrow.

Depending on the lender you’re working with, you may not need to meet with anyone in person or even speak to a representative on the phone. Many banks and credit unions now offer online prequalification forms that you can complete in just a few minutes. 

When Should I Get Prequalified?

Since you’re not required to prequalify for a mortgage, it’s up to you to decide when (or if) to go through the process. However, many homebuyers choose to prequalify early so they have an idea of their budget before they start shopping for homes.

If you find that you can’t qualify for the amount you were hoping for, you may need to start exploring lower-priced homes or hold off on buying until you improve your finances and can potentially qualify for a higher mortgage.

While prequalification can be an excellent option for those who are early in the home buying process, if you’re ready to buy very soon, you may choose to skip prequalification entirely and go straight to the preapproval process instead.

The Differences Between Mortgage Prequalification vs. Preapproval

The terms “prequalification” and “preapproval” are sometimes used interchangeably, but they are actually very different. A prequalification provides you with an estimate of the maximum loan amount you can borrow and your likely interest rate, but the numbers aren’t set in stone.

Since you aren’t required to provide documentation to verify the information you’ve provided, a lender who gives you a mortgage prequalification is not committing to the rate or the loan size. However, this is a critical first step to help you make sure you’re on the right track as you start house hunting.

Getting prequalified is generally a good idea if you’re just casually starting to look at homes or you want a general idea of how much you might be able to afford.

A preapproval requires verification of the information you’ve provided. This means you’ll need to provide written documentation.

The lender will also do a hard credit check and review the details included in your credit report. Then they’ll provide you with a written document showing how much they’re willing to lend you and the estimated interest rate. 

While this does not guarantee that you will be approved for the loan, it’s stronger than a prequalification. A preapproval often provides you with additional information, including an estimate of your required down payment and your approximate monthly mortgage payments.

This can help you truly understand whether you’re likely to be able to afford the home you’re hoping to buy. 

Getting preapproved also shows buyers that you’re serious. In a multi-offer situation, there’s a chance that sellers will only accept offers from preapproved buyers.

Some real estate agents will also only work with buyers who have already been preapproved. 

If you’re serious about buying a home in the near future, a preapproval may be a better option than a prequalification. However, it’s important to note that preapprovals are typically only good for 60 to 90 days, so consider your timeline when deciding which option is best for you. 

Learn more about prequalifications vs. preapprovals

Should I Get Prequalified for a Mortgage?

Deciding whether to get a mortgage prequalification is really a personal decision. However, there are some important advantages for both first-time homebuyers and those who have purchased a home in the past. 

Prequalifying gives you a budget to work with so you don’t waste time shopping for homes you can’t afford. If there’s a problem with your finances that could prevent you from qualifying for a mortgage loan, starting the prequalification process early may allow the lender to provide you with a list of things you can do to become a qualified borrower.

For example, you may find that you need to pay off some of your outstanding debts, save money for a larger down payment or work on raising your credit score. After taking these steps, you can return to the lender and attempt to prequalify again.

Getting prequalified will also allow you to get an estimated interest rate. With this information, you can start to shop around and compare loan offers.

This will help you decide which lender you want to work with when you’re ready to move on to the preapproval stage or put in an offer on your dream home.

Prequalification vs. Preapproval FAQs

Do I have to get prequalified to start looking at homes?

No. Getting prequalified is a good start to figuring out your home-buying budget, but it’s not a requirement. If you’re early in the process, you can look at homes without prequalification.

Do I need to be prequalified before I can be preapproved for a loan?

No. They are not dependent on each other. If you’re ready to buy a home, you can skip prequalification and go to the preapproval process immediately, especially if you’re ready to make offers.

How long does prequalification or preapproval take?

Prequalifying is a quick process that can be done online, and you may get results in a few minutes or a couple of hours. You’ll supply more information for preapproval, and the process is more thorough, so expect the process to take more time.

Although response times vary by lender, expect to receive your preapproval letter within 5-10 business days after you’ve provided all requested information.

Do I have to spend the full amount I’m approved for?

No. You can shop below your top-end price range, and if you find a home that costs less, you may still get a larger loan, leaving you with extra cash to set aside for other major expenses such as home improvements, college expenses, or retirement. Working with your financial advisor to explore your options before deciding how big of a loan you should get is best.

Do I need to fill out a mortgage application?

With prequalification, the answer is no. With preapproval, the answer is generally yes.

Do both processes require me to estimate my down payment?

With prequalification, the answer is no. With preapproval, the answer is yes.

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