Buying a home is unlike your everyday investment, which you can make out of the blue. A lot of time, effort, planning, and resources go into elevating your lifestyle and growing your social standing.

That is not something you would want to wait a long time for. To fast-track your process for obtaining a loan and buying a new property, you can go for the processes of mortgage prequalification and mortgage preapproval.

So, what are these processes all about, and how can they help speed up your home-buying process? That is what we will talk about.

Key Takeaways

What is Mortgage Prequalification?

You might be new to real estate investments, or an experienced one, you might have one question on your mind when buying a home "How much loan amount am I eligible for?" That question is answered when you are pre-qualified for a mortgage.

How Does it Start?

This is the initial process where lenders assess your financial position by asking relevant questions. Some of the things which the lenders would want to know during the process of prequalification are:

• What is your full name and mailing address?
• Are you currently employed?
• How long have to been working for your current employer?
• How much is your total income before paying tax?
• Are there any additional sources of income that you want to disclose?
• Do you have any outstanding overdue debt to pay?
• Can you pay the down payment for the loan, or someone else will pay it for you?
• Do you have negative points on your credit history like missed payments, debt defaults, or home foreclosures?
• What is your current credit score?
• What is your expected loan amount?

These were just a few of the questions that the lender would be interested to know and move on with the process.

There is No Verification Process

Once you answer these questions, the lender will not verify the information and give you the required outcome. This can be good and bad, both. First, let's talk about the positives of not verifying the documents.

The processing time will significantly reduce. You can even get the results within 24 to 36 hours.

But the thing is, faster results with unverified data mean the outcome might not be too accurate.

Did You Know
On some occasions, there is no need for human interaction in mortgage prequalification. That is why most lenders are offering their services online.

Does Not Impact the Credit Score

Your credit report is where the lenders will find your history of financial irregularities like fraud and defaults. But for the prequalification process, the lender does not access your credit report to check these irregularities.

This means that they are lodging a soft inquiry, which will not have any impact on credit score.

What is Mortgage Preapproval?

When you want to amp things up with your property-buying activities, you may need a mortgage preapproval. This is where the claims you make about your financial positions are verified by the lender.

Some Documents to Prove Your Claims

These are some documents you might want to have handy for getting preapproved.

• Passport or Driving License
• Paystubs
• W-2 Forms
• Tax Returns
• Bank Statements
• Employment Verification Letter
• Credit Report

The Time It Will Take

After verifying the proofs, the lender now comes up with a more accurate loan amount for which you are eligible. This can be more time-taking as the preapproval generally takes 7 days to complete.

Preapproval Can Decrease Your Credit Score

Unlike pre-qualification, the lender checks your credit report for history of financial fraud. This is what the lenders would want to know before giving you the loan.

When the lender accesses the credit report, it is a hard inquiry. That means your credit score may temporarily decrease. But don't worry. The credit score should be back to normal within a month or two.

Prequalification and Preapproval on Your Home Buying Timeline

Once you have gone through mortgage prequalification and preapproval, you can smoothen your home-buying process. This allows you to get into your new home quicker than you would without prequalification and preapproval.

Faster Home Searching

Mortgage prequalification gives you a rough estimate of the loan you are eligible for, and preapproval narrows that amount to a nearly accurate one. That is the green light you need to start your journey of finding a property that meets your budget and preference.

You won't have to waste your time selecting and obtaining financing for properties that are not within your budget.

Standout among Other Home Buyers

The home seller usually gives priority to the preapproved buyers. That's because they know these buyers have gone through the document verification process and are serious about buying the property.

So, suppose it is a contest between you and 4 other potential non-preapproved buyers. You are likely to win and get the chance to buy the property. That's all thanks to you having the preapproval letter in your hands.

Efficient Documentation Process

Remember, you have already gathered and verified the documents needed to secure a loan. This can save you a lot of time, as you will just have to accept the offer from the lender, and the loan is yours.

Take Care of Potential Issues

It needs an expert to tell you what you need to improve to be eligible for a higher loan amount. That's what you get during the preapproval process, as the lender evaluates your credit history and points out the negatives.

So, before you go to the lender to get home financing, you will know what you need to do to improve your credit report. You won't need another hard inquiry to understand the negative points of your credit report.

Summing it up

Time waits for no one. The sooner you finish the process of moving into a new home, the better, as you will have other homeowner responsibilities to deal with. So, time to explore a new home from HAR.com, your real estate shopping avenue.