How the Prequalification Process Works
Getting prequalified is typically a quick and informal process that you can often complete online or over the phone in just a few minutes.
- You Provide Financial Information: You’ll share basic, self-reported details with a lender, including your estimated income, monthly debts (like car loans or student debt), and the amount you have for a down payment.
- The Lender Calculates an Estimate: Using only the numbers you provided, the lender performs a high-level calculation to estimate a potential loan amount.
- You Receive a Ballpark Figure: The lender gives you a non-binding estimate of the mortgage you might qualify for.
This process generally does not require an application fee or a “hard” credit inquiry that would impact your credit score.
Prequalification vs. Preapproval: Understanding the Key Difference
Homebuyers often confuse prequalification with preapproval, but the distinction is critical. A preapproval is a much more formal and reliable indicator of your borrowing power.
| Feature | Mortgage Prequalification | Mortgage Preapproval |
|---|---|---|
| Purpose | A quick, informal estimate to gauge affordability. | A conditional commitment from a lender for a specific loan amount. |
| Verification | Based on self-reported financial information (unverified). | Based on verified documents (pay stubs, tax returns, bank statements). |
| Credit Check | Usually a “soft” pull or no credit check. | Always requires a “hard” credit pull, which can temporarily affect your score. |
| Result | A ballpark loan estimate. | A formal preapproval letter that strengthens your offer on a home. |
| Impact on Offers | Minimal. Sellers may not consider it seriously. | Significant. Shows sellers you are a financially vetted and serious buyer. |
As the Consumer Financial Protection Bureau (CFPB) clarifies, a preapproval letter carries far more weight when you decide to make an offer.
When Should You Get Prequalified?
Prequalification is most useful at the very beginning of your homebuying journey. It’s a good fit if you:
- Are just starting to explore the idea of buying a home.
- Want a quick, no-commitment budget to guide your online home browsing.
- Are not yet ready for a lender to perform a hard inquiry on your credit report.
However, its main limitation is that it’s not a guarantee of a loan. Once you are ready to tour homes and make serious offers, you should proceed with getting preapproved.
Frequently Asked Questions (FAQs)
1. Does mortgage prequalification affect my credit score?
Usually, no. Because prequalification relies on self-reported data, most lenders use a “soft” credit pull or no credit pull at all, neither of which impacts your credit score.
2. How long does a prequalification last?
A prequalification doesn’t have a formal expiration date because it’s just an estimate, not a commitment. However, its accuracy depends on your financial situation remaining the same.
3. Can I make an offer on a house with only a prequalification?
While you technically can, your offer will be significantly weaker than one backed by a mortgage preapproval. In a competitive market, sellers are unlikely to accept an offer without a preapproval letter.
Once you have a budget in mind, your next step is to get a lender’s official commitment. Learn more about the mortgage preapproval process to make your offer stand out.
