If you need financing to buy a home, your first step should be to get prequalified. Do not get this confused with getting “preapproved,” as they are two different things.
A prequalification is when a mortgage company analyzes your financial profile and makes a preliminary decision on how much money you can borrow to buy a home. Typically, whatever verbal information you provide about your debt, income and assets will be weighed in the process.
There are several differences between a prequalification and a preapproval, but the main one is that during a preapproval you will fill out a formal mortgage loan application. A loan application asks you questions about your income, debts, identity and more. During this stage, you will have to supply supporting documentation about what is on your application. Often, this includes your tax returns, pay stubs, credit report and/or any other relevant documentation (each person’s situation is different, so some documentation may or may not be required).
After a loan application has been received, as well as its supporting documentation, your file is then reviewed by an underwriter, who makes a credit decision about you — approving, denying, etc.
It is recommended that you do these before you start shopping for a home. They allow you to get an idea of how much you afford before you look at places that are out of your budget.
CLICK HERE to learn about the differences between a thorough prequalification process and a hasty one, and how they can affect your home-buying experience. This CAN SAVE YOUR SANITY.