Mortgage prequalification: What it is and how to get it

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Key takeaways

Mortgage prequalification is a quick estimate of how big a mortgage you might get.
Prequalification does not require paperwork or a hard credit check, so it won’t negatively impact your credit score.
Prequalification can help establish a general home buying budget, but it’s not a commitment for financing, like preapproval.
Prequalification is different from preapproval, which involves submitting documentation and a hard credit check, and holds more weight when making an offer on a home.

You’ve probably seen the ads or banners or billboards: “Get prequalified for a mortgage now!” Mortgage prequalification can help you determine your homebuying budget, by giving you a rough sense of your borrowing power. However, it is only an estimate, and it won’t help you much if you want to make a hard offer on a home.

Here’s everything to know about mortgage prequalification, including what it is, how to get it and how it differs from a mortgage preapproval.

What is mortgage prequalification?

Mortgage prequalification shows that a mortgage lender has estimated how much house you can afford based on basic financial information about you. It’s a preliminary indication whether you can get a loan, and how much that loan might be.

Bear in mind, this is not a loan commitment or a guaranteed amount. Nor is it an official application. Applying for the actual mortgage comes after a seller accepts your offer on a home.

How to prequalify for a mortgage

Most prospective homebuyers seek a mortgage prequalification online or by phone. To prequalify for a mortgage, you’ll need to provide the lender with information on:

Your income
Your employment
Your monthly debts or obligations
Your financial assets: savings, checking, retirement and investment accounts
Your Social Security number
Your planned down payment
Your history of bankruptcies

“Prequalification is an early step in obtaining financing,” says Will Reynolds, a real estate agent based in Nashville, Tennessee. “This is not a guarantee of a loan, but simply a first, but very important step, in the process.”

The process is quick, too. The lender takes your info and evaluates it, often running a soft credit check. After inputting your info, you should have your answer within minutes.

Why get prequalified?

Getting prequalified has a number of advantages. First, it can help you establish a ballpark homebuying budget: If you have a sense of how much you can finance, it’ll help determine how much home you can afford overall. That way, you’re less likely to be looking at houses or neighborhoods outside your price range.

A mortgage prequalification gives you insight into whether your credit or finances need beefing up. So when you’re ready to actually apply for a loan, you might qualify for a bigger amount or better interest rate.

Getting prequalified can also help expedite the loan process. While you will have to apply and submit actual paperwork this time, you”ll have a sense of what sort of info the lender wants, and can be ready with figures and documents.

While most home buyers can benefit from getting prequalified, it’s not always necessary. For example, if you have a clear sense of your price range, have compared lenders and have gotten your finances in shape, you can skip the prequalification and apply to get preapproved.

Mortgage prequalification vs. preapproval

While they sound a lot alike — and are sometimes used interchangeably — prequalification is not the same as preapproval.

With a home loan prequalification, lenders take your word about your finances; they don’t require documented proof. A prequalification will give you a sense of what you can afford, but it doesn’t guarantee you’ll get a loan that size, or even a loan at all. In contrast, a preapproval is more of a commitment on the lender’s part —an agreement in principle to extend you a certain amount of financing, often with an estimated interest rate.

More key differences between preapprovals and prequalifications include: