How To Prequalify For Home Mortgage Loans

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After you find your dream home, it’s time to figure out how to afford it. Being prequalified by a mortgage lender lets you know how much you can borrow for your new home based on your income, employment, credit score, and bank account information.

Here’s a quick guide by Brunswick Crossing on how to prequalify for home mortgage loans:

  1. Understand what prequalification is. Getting prequalified for home mortgage loans doesn’t require a verbal or written commitment from you or the lender. It’s an informal, informative estimation of how much you qualify to borrow for a new home based on a variety of existing financial factors, including the following:


    • Your income. Your gross household income takes into account your salary, hourly wages, overtime, bonuses, commission, rental income, capital gains, and alimony and child support.

    • Your current monthly obligations. Your monthly obligations take into account long-term debt, including student, credit card, or car loan payments, as well as alimony and child support.

    • Your assets. Your assets are a financial snapshot that includes your bank account balances, retirement funds, assets to liquidate, 401K funds, and gift funds.

    • Your credit score. Your credit score is a numerical rating of your ability to repay a loan. Your credit score depends on a number of factors, including payment history (on-time payments, late payments, and past due payments), number of credit accounts, and borrowed credit versus credit limit.

      Another critical distinction to note is that pre-qualification isn’t the same as pre-approval. Many people, especially first-time home buyers, interchange these terms. Pre-approval is the next step in the homebuying process and requires a formal application and financial documentation. 

      Like pre-qualification, pre-approval isn’t mandatory in the homebuying process. Similarly, it doesn’t guarantee an approval of a home mortgage loan for your new home, but it’s a good idea to go through both steps to gauge a better understanding of your buying abilities. 


  2. Use an online mortgage calculator. While this isn’t the final number, mortgage calculators help estimate your monthly payment and closing costs based on the cost of the new construction home, your down payment, credit score, state, and more. 

    This is useful when you have a discussion with an actual mortgage lender. Check out this example of a loan pre-qualification calculator from Bankrate, “an independent...publisher and comparison service,” according to their website.

  3. Choose a mortgage lender. To compare lenders, look at the Annual Percentage Rate (APR), which gives you an overview of the total cost of a loan per lender. This is the best measurement because it details the interest charged and other costs associated with the home loan, including mortgage/discount points and lender origination fees.  

    Also, ask for recommendations from friends, family, and new home sales consultants. Visit your local bank branch, credit union, savings institution, or mortgage company. The more information that you gather, the better.

  4. Put together the correct paperwork. Pre-qualification doesn’t require you to fill out a hard-copy application, but you should give your chosen lender the most recent financial documents.

    This provides the most accurate information as possible, which means you get a more accurate estimation of your monthly mortgage payments, interest rate, and so on. It’s important to avoid exaggerating your credit score, minimizing your debt, or fudging your income.

Remember: The pre-qualification letter is an approximation based on the information that you provide each lender. It’s informal and optional but a good step in the right direction of buying a new home.