Very few home buyers purchase a home without financing. In fact, a 2022 Zillow study showed that 78% of buyers used a mortgage to finance their home purchase. Getting pre-qualified for a mortgage is one of the first actions a buyer can take to begin the home buying journey, bringing them one step closer toward homeownership.
While optional, a mortgage pre-qualification will provide you with an estimated loan amount that you can then use as a price range to guide you in your search for a home.
A mortgage pre-qualification is the process where a lender reviews your self-reported income, debts and credit to determine an approximate loan amount you may be able to borrow. To pre-qualify for a mortgage means you meet a lender’s general guidelines based on the information you provide. Keep in mind, lenders may use different criteria to pre-qualify a person.
While pre-qualification is optional, getting pre-qualified before you begin your home search will help you know which homes will fit best within your budget. If you’re curious about the loan amount you may qualify to borrow and not quite ready to start a loan application, you can connect with a lender any time on Zillow.
The mortgage pre-qualification process can be as simple as having a short phone conversation with a lender or completing a pre-qualification questionnaire online. On Zillow, you can connect with a loan officer who will help you start the online pre-qualification process. While individual banks and financial institutions may have different pre-qualification practices, here are some general tips to help you get prequalified for a home loan.
While you may be able to get prequalified without a hard credit check, it’s a good idea to review your credit report at the beginning of your home search to give you time to fix any errors and identify areas where you can improve your credit. It can often take 30 days or more for changes to affect credit scores, so the sooner you’re able to make improvements the better. Some lenders may want to run a soft credit check when you get pre-qualified to verify credit history, so they can provide you with a more accurate loan amount. Soft pulls won’t impact your credit, but hard pulls will.
A good place to get insight into your credit history is annualcreditreport.com, where you can receive credit reports from all three major credit bureaus. Most mortgages require a credit score of at least 580. A higher score makes it easier to prequalify for a loan and can help you secure a lower interest rate when you apply.
Another key factor lenders review is your debt-to-income (DTI) ratio. Your DTI is calculated by dividing all your minimum monthly debt payments by your gross monthly income (before taxes). The lower the number, the better — most lenders require a DTI of no more than 50% for conventional loans. FHA and VA loans often have higher DTI limits. You can easily check your DTI ratio using our calculator.
If your DTI is too high, you may consider applying with a co-signer, so their income is also considered. Together, your combined income and debts may give you a lower DTI.
A down payment decreases the amount of money you are borrowing and can help you qualify for a larger loan amount, if needed. While some home loans have down payment requirements as low as 0% to 3%, borrowers with a larger down payment often receive more favorable credit terms from their lender as they are seen as more of an appealing loan candidate. That’s why saving for a down payment before you get prequalified for a mortgage can benefit you. When you have a 20% down payment, you can also avoid the additional monthly cost of private mortgage insurance that is typically required on conventional loans, which will lower your monthly mortgage payments.
A co-signer is someone who shares the financial responsibility for a mortgage with you. There are two kinds of co-signers: those who will live in the home with you and those who will not. Having either type of cosigner on your mortgage application can strengthen it, since both of your incomes, debts and credit scores are considered.
Once you’re ready to get pre-qualified for a mortgage, reach out to a local lender. Every lender has slightly different offerings and qualification criteria, so it’s a good idea to shop around until you find a lender whom you trust and feel comfortable working with.
Your lender will ask you about your income, employment, monthly bills, down payment amount and potentially a few other questions related to establishing your creditworthiness. Then, you’ll be provided with an estimated loan amount you may qualify to borrow. If you’re willing to do a soft credit pull (which won’t impact your credit), some lenders can also provide you with a pre-qualification letter with the estimated loan amount that you can then share with your agent to let them know you’re a serious, pre-qualified buyer.
When the time comes around to officially apply for your home loan, you’re not obligated to use the same lender who did your pre-qualification — but you can. You should compare rates and terms, as well as your relationship with a lender, as you decide on who to work with.
A pre-qualification is just an optional, first step you can take to understanding how much of a mortgage loan you may qualify for. To formally apply for a mortgage, you’ll need to complete a loan application with a lender of your choice. During the application process, you’ll be asked to provide several types of documents to verify your financial information.
Once you know the address of the property you plan to buy, have a purchase contract in place and complete a loan application, your lender can begin underwriting your loan and provide you with an official loan estimate. During the underwriting process, a few things will happen like verifying your employment and getting the home appraised. Once processing is complete and your down payment is wired to the title company, you’re ready to close on your new home.
Find answers to frequently asked questions about pre-qualifying for a home loan.
While pre-qualification and pre-approval are two optional steps you can take to begin the loan process and learn about your home financing budget, they’re not the same process. To get pre-approved, you'll likely need to submit certain verified information — such as W2-s and other tax information — making it a lengthier process than pre-qualification. Unlike pre-qualification, pre-approval may also require a hard credit check to verify your financial information, depending on the lender's pre-approval process.
The advantage of a pre-approval versus a pre-qualification is that a pre-approval is a conditional commitment from a lender to loan you money (as opposed to a pre-qualification which is an estimated loan amount based on self reported information). You’re more likely to be approved for a mortgage once you have been pre-approved as long as your finances don’t drastically change between pre-approval and a fully underwritten application. Pre-approval letters will also generally include an estimated interest rate based on a specific loan program, such as a 30-year conventional loan.
Getting pre-qualified for a mortgage before you start your home search will give you a quick estimate of how much you can afford to buy, so you can more easily find a home that fits comfortably in your budget. Once you’re ready to make an offer, consider getting pre-approved. Submitting a pre-approval letter with your offer will show sellers that you’re a serious buyer who is financially able to buy their home.
Mortgage pre-qualifying is completely optional, but it can be a helpful way to hone in on a reasonable home buying budget and give you confidence as you move ahead toward finding a home. Another option is pre-approval. It’s a more extensive process, but a good first step if you’re interested in buying within the next couple of months.
Pre-qualifications can be done online, and most lenders can turn around your results within an hour or less.
If the lender does not need to do a hard credit pull, the pre-qualification process doesn’t usually require a credit check. Instead, you self-report your estimated credit score. If your credit score is checked during pre-qualification, it’s sometimes a soft pull that doesn’t hurt your score. The soft pull allows the lender to compare your credit to your self-reported info to provide you with the best loan estimate possible.
Unlike a pre-approval letter, which expires after 90 days, a pre-qualification does not have an expiration date.
How much you’ll pre-qualify for is based on your financial profile. The best ways to boost your pre-qualification amount are to increase your income, increase your down payment amount or ask a co-signer to apply with you. You can also ask your lender for recommendations as well.
Pre-qualification is just an estimated amount that you may qualify for and isn’t a loan guarantee from a lender. You can get denied a loan if your financial situation changes, if your self-disclosed financial information is inaccurate or due to other factors a lender may be aware of at that time. You can increase your odds of ultimately being approved for a mortgage by providing accurate numbers in your application and by maintaining good credit throughout your home search.
If you end up not pre-qualifying for a mortgage or not pre-qualifying for the amount of money you expected, here are some things you can do.
Increase your down payment amount: This lowers the amount of money you’d need to borrow (or increases the loan amount you could qualify for), and helps lower your expected monthly mortgage payments. Learn more about down payments and see why 20% is ideal.
Decrease your overall debt to improve your debt-to-income ratio: A DTI of 36% or less is preferable; 43% is the maximum. You can lower debts by adjusting spending habits, making payment on-time and paying down high-interest credit cards. Use our debt-to-income calculator to estimate your current debt-to-income ratio.
Work to improve your credit score: Do this by correcting any errors on your credit reports, addressing late or missed payments and reducing the number of hard credit inquiries, which happen when you apply for new credit like a credit card or an auto loan. You can also improve credit by paying down credit cards and other debts.
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