5 benefits of mortgage pre-qualification
Getting pre-qualified for your mortgage leads to big benefits in the homebuying process. Here are 5 reasons to make sure you get pre-qualified.
Taking the leap on buying a house? To some consumers, pre-qualifying for a mortgage might seem like jumping through hoops. After all, you’re qualifying in advance to then qualify for a home loan. Why the extra step?
There are plenty of reasons for the extra step – possibly as many as there are stairs to your future front porch. There’s no drawback to getting pre-qualified: The process is simple, quick, and free.
OK, I'll bite. But what exactly is a pre-qualification?
A mortgage pre-qualification is a way to learn how much home you can afford to buy. Getting a mortgage prequalification is easy and requires only information that you submit to the lender to estimate what you can borrow. These documents typically include bank statements, tax filings, and the monthly loan payment amount you can afford. It can be done for free online, in-person, or on the phone.1
Benefits of getting pre-qualified
In 2022, 16.1 million mortgage applications were filed.2 It’s safe to say most of those applicants sought to be pre-qualified. Here’s why they were better off.
Pre-qualifying helps you get real about budget. A pre-qualified mortgage typically provides a ballpark estimate of how much money you can borrow, breaking down what your monthly mortgage payments would be. The general rule of thumb is your monthly home-ownership expenses, which include mortgage, taxes, insurance, and utilities, should not exceed 28% of your total income.3 The pre-qualification process gives shape to this monthly figure.
It prevents sand-castle dreams. Yes, the amount you are pre-qualified to borrow will have some wiggle room, but it also will manage your expectations. This is why it makes sense to get pre-qualified before you start house-hunting; it can help you avert the heartache of falling in love with a mid-century-modern that’s outside your budget. Further, your ballpark price will limit the number of homes you tour, saving you time. If you’re a renter, a positive pre-qualification can determine that it’s time to alert your landlord.4
You get on the ground floor of mortgage options. Just as there are many styles of homes, there are many kinds of mortgages. During pre-qualification, you and your lender can discuss which options best suit you. Some mortgage products, such as First Financial’s Community Builder and Community Housing Affordable Mortgage Program, are designed for borrowers with limited credit histories or income. We also offer specialty loans for physicians and for teachers, firefighters, and law enforcement. You can review all our mortgage options here.
It gives you a foot in the door. Think of your homebuying process from the standpoint of the seller. A lot of offers can come in, but how do the realtor and seller distinguish the bidders who want to go through with it from those who will get cold feet? When given many choices, the seller will more seriously consider an offer from a pre-qualified borrower. It shows that you’ve been working with a mortgage agent, and that gets you a step ahead.5
You know where you stand without risking your credit. A pre-qualification check of your credit – basically a review of your credit report and credit score – is considered a “soft inquiry” that will not affect your credit rating. A “hard inquiry” occurs when you officially apply for the loan and that can alter your credit score because the additional debt would be considered a possible risk to your ability to pay off other loan obligations.6
Pre-qualifying opens the door to your next step
Getting pre-qualified for a home loan is easy. It’s fast. And it provides you with helpful information that can guide you to making better borrowing decisions, regardless of the house.
With a pre-qualification, you have the framework of how much money your bank is willing to lend you, from a professional. And that’s kind of like money in the bank.
Thinking about buying a home? You can apply for a mortgage online with First Financial at any stage of the process here. When determining how much you should borrow to buy a home, factor in your debts, daily living costs, and unplanned expenses. A loan officer can help.