In order to prequalify for a mortgage, you will need to work with a lender, broker, or similar institution. The lender will often require that you provide a variety of information, such as your income and expenses. You will usually then have to provide authorization for the lender to check your credit score. After the lender has compiled all of this information, you may be prequalified or denied. If your debt to income ratio is favorable and your credit score is good, then you may be issued a letter that states you prequalify for a mortgage.
The process to prequalify for a mortgage begins with finding a bank, credit union, or mortgage broker to work with. You may speak with several of these entities to determine which will offer the best possible interest rate or choose one based on advice from family or friends. After you have chosen a lender or broker to work with, you will need to gather some financial information. This will usually include your income and any debts or bills that you are responsible for paying. The lender or broker can use this information to compile a debt to income ratio, which is often instrumental in determining how large a mortgage you may obtain.
After you have worked with your lender or broker to find out your debt to income ratio, you will usually need to give permission for your credit to be checked. The lender may check with only one credit bureau, or may use several to determine a composite score. Your credit rating will often be used along with your debt to income ratio to determine if you can prequalify for a mortgage. A good credit rating will usually lead to a better interest rate, just as a good debt to income ratio can allow you to prequalify for a larger loan.
Once your broker or lender has all of the required information, you can either be prequalified or denied. If you are prequalified, then you can request a letter to that effect. The letter will usually state that you prequalify for a mortgage, which institution has issued it, and how much money you may be able to obtain. This letter may be useful when submitting an offer to purchase a home, since it can show the seller that you have gone through much of the preliminary work associated with obtaining a mortgage. The letter does not usually represent a guarantee, and a variety of factors can lead to a loan being denied despite this prequalification.
