Prequalification

Often, if you are looking to get a mortgage, the first step to obtaining a house is getting a prequalification from a lender. A prequalification is a hard inquiry on your credit bureau that lenders use to give an initial estimate of your ability to borrow. The reason they cannot go into complete detail on whether you are approved for a mortgage or not is usually detailed around the house you are purchasing and your income. They are unable to verify exactly the amount of your income and the sources of it and they are unaware of the condition of the house. All of these conditions come later in a mortgage process, but the prequalification is still useful for showing level of intent of a buyer.

Consider that you are selling your house for $250,000. One buyer comes in and says he will buy it for $240,000 and has a certified prequalification from a large national bank for that amount. Another buyer comes in and says he will pay $260,000 and promises that he can get a mortgage. You have one week to sell. Who do you choose? I know some would choose the second, but the prequalification is essentially a guarantee on the quality of your offers and sellers are generally more willing to take your offer seriously.

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As a buyer, it is very simple to get. Often, you are able to fill out a form for maybe 5-10 minutes online and then it is in the mail. It does not compare to the complete cavity search that is a traditional mortgage. To buyers: remember that you can write the prequalification for less than your maximum! When I obtained my prequalification (numbers changed for some anonymity), I was given an estimate of being able to afford a mortgage up to $200,000. The houses I was looking at were only in the $150,000 range, however. If I went to the seller with the $200,000, they are more willing to negotiate harder with me since they know that I am qualified to go much higher. Simply ask the bank to write the prequalification at a lower rate (I had mine written at $150,000) so you can walk to the seller and say “I wish I could offer more, but the bank won’t let me!” A devious little trick, indeed.