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To Pre or Not to Pre: Understanding Mortgage Pre-qualifying

10/25/2012 Jordan Blakley


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To pre or not to pre? As Prince of Denmark, Hamlet didn't need to get a mortgage. For the rest of us, however, it's a seemingly never-ending series of decisions and choices. When buying a home, making some choices earlier on like pre-qualifying for a mortgage, can simplify decisions.

That's the case with pre-qualifying. Pre-qualifying a mortgage is an optional step you can take before applying and ultimately obtaining a new home mortgage. It helps you understand the loan amount and programs for which you may qualify. And, most importantly, it can help you find a home that fits your budget.

Nevertheless, it's not actually required to get pre-qualified when seeking a mortgage. So why bother? Let's take a look.

Pre-Qualifying a Mortgage — What is it?

Pre-qualification is often a smart first step when applying for a mortgage. This process allows lenders to take a peek at your financial situation and recommend an estimated loan amount that will best suit your needs. All you have to do is supply your lender with information regarding your income, debt, credit, and assets.

Best of all — you can pre-qualify online or by phone. And, there are usually little to no costs involved. In addition, lenders will not ask for a credit report. This means you can comparison shop with multiple lenders without worrying about your credit score dropping (which we talked about in 10 Ways to Protect Your Credit Score).

A Friendly Reminder

Just remember, however, that a mortgage pre-qualification does not guarantee you a particular loan amount. It isn't a formal application. A pre-qualification simply provides you with an estimate to help you decide if buying a home is a viable option. It does not secure you a mortgage.

Why is this? The lender hasn't verified income, debt, credit, or assets when pre-qualifying you. In addition, your funding will also hinge on the home's appraisal, inspection, and title search. Remember, mortgage companies will only lend you a portion of the actual home value (for more information about how the appraisal process works and how it affects your loan, check out our blog article, Understanding the Home Appraisal Process).

Advantages of Pre-Qualifying

Being pre-qualified does come with some great perks, though, including:

  • Establishing Affordability and Saving Time — One of the greatest advantages to completing pre-qualification is that you know exactly how much you can afford to spend before you look for a home. This will enable you to focus your house hunting on properties that comfortably fit your budget.
  • Bidding Confidently — Once you have found your dream home, you can bid more confidently. Rather than worrying if you can secure financing, you'll be armed with the knowledge that your lender has already pre-qualified you for a certain loan amount. Many times, pre-qualifying is a prerequisite for a bid to even be considered. "Most agents will not accept an offer or even entertain one until they are given proof that you have been properly pre-qualified," says Nathan Dyce, PennyMac loan officer.
  • Streamlining Closing — With a mortgage pre-qualification, you will also be in a better position to close. This is because you will have already established a relationship with your lender and will have already provided some of the necessary application paperwork through the pre-qualification process.
  • Freedom from Obligation to Any One Lender — Most importantly, you are not required to work with the lender who pre-qualifies you. Pre-qualifying is a non-binding process. This ultimately allows buyers to shop around and pre-qualify with multiple lenders to find the best offer.

Remember, being prepared is one of the smartest things you can do to expedite the home buying process. So, if you have fifteen minutes to spare, it may be worth calling your lender to ask about pre-qualifying for a mortgage. This step will not only provide you with an estimated loan amount, but will help you narrow down the search for that dream home.

Interested in pre-qualifying with PennyMac? Just give us a call at (866) 549-3583 or get started online and we'll get right back to you to finish your mortgage pre-qualification over the phone.