The Rundown On Prequalifying
Being prepared is one of the smartest things you can do to help the home buying process run smoothly. Having an idea of the amount you could borrow in advance can give you a big advantage at different stages of your home search. That's exactly what you get when you prequalify.
- Provides an estimate of your borrowing power.
- Is based on information you provide verbally about your income, assets, and sometimes a credit check.
- Is offered by most lenders at no cost.
- Is neither preapproval nor a commitment to lend. You must submit additional information for review and approval.
Why get prequalified?
Getting prequalified allows you to estimate the loan amount and type that’s right for you, so you can effectively tailor your home search to include only homes that are in your price range. Not only does it help you establish expectations and draw up a realistic budget, it can also strengthen your negotiating position with the seller when you’re making an offer on a home.
It's important to note that your lender may prequalify you for more than you think you can comfortably afford. However, you are not obligated to borrow that amount or even share your prequalification amount with your realtor. Your best bet is to stick to your budget. Ask your realtor to show you only homes in that price range. The amount you should borrow should never be more than what you can comfortably afford.
What is a conditional approval?
A conditional approval is a more serious step toward buying a home. It is a conditional commitment in writing for a specific loan amount and loan program. Provided all the specified conditions are met, the lender is obligated to go through with the loan. The buyer, however, is free to walk away from this commitment before anything is signed. It will also give you a general idea of your interest rate and potential monthly payment.
Conditional approval is subject to satisfactory appraisal and title review and no change in financial condition. If the rate is not locked or rate protection expires, any rate increases may lower the conditionally approved loan amount.