The purchase of a new home requires learning all about various aspects of homeownership (financial, legal, and practical) that can be overwhelming to a first-time homebuyer and homeowner. As part of our ongoing All About series, LGI Homes seeks to provide an easy-to-read and easy-to-understand resource that goes in-depth on a variety of subjects connected to buying a home. Today, we explore the world of mortgage pre-qualification and how it will play into your experience of buying a home.
What is mortgage pre-qualification?
Mortgage pre-qualification is a process that involves either sitting down with a potential lender or speaking by phone to calculate how much you can realistically spend on a home. Potential lenders will take your income, assets, debt and potential down payment amount and run them through a calculator to figure how much you can afford to pay monthly on a mortgage.
Why should I pre-qualify?
Mortgage pre-qualification allows you to figure out if buying a home is in your best interest and gives you an idea of how much money you have to work. Without mortgage pre-qualification, you may assume you can spend less or more on a home than you realistically can. Mortgage pre-qualification also helps you narrow down homes when browsing, as you will be less likely to look at homes outside of your budget.
What are the commitments and costs of mortgage pre-qualification?
There are no costs or commitments on either side for mortgage pre-qualification. Think of it as a free consultation.
When should I check my mortgage pre-qualification?
You should speak with lenders and test your mortgage pre-qualification as soon as you decide to buy a home.
Are there any misconceptions regarding mortgage prequalification?
Yes. Mortgage pre-qualification is not the same as mortgage pre-approval. Pre-approval involves a tentative commitment to a lender. The lender tells you exactly how much money they will lend you and your job is to find a home to spend the loan on. Pre-qualification is based on the idea of “might,” pre-approval is based on the idea of “will.”
Are there any other benefits to mortgage pre-qualification?
Yes. Mortgage pre-qualification gives you the ability to shop different lenders to find one you enjoy working with. Because it is free, you don’t have to spend money out of pocket to meet with lenders and get an idea of what they might lend you and what the terms might be.