By procuring a prequalification letter, you can ensure your eligibility for a home loan, for a specified amount. Here is a brief overview about the procedure.
Getting prequalified for a home loan can always prove beneficial for those, who plan to buy a home in the near future. In fact, it should among the preliminary steps, if you intend to apply for a mortgage loan for purchasing a house. It is assumed that people with such prequalification are serious about the purchase, and so, the sellers may also show some interest in negotiations. Another advantage is that once you zero in on the right home, you can speed up the full approval, if you have a home loan prequalification.
What is Home Loan Prequalification?
It is the pre-approval given by a lending institution to a prospective buyer, for a specific loan amount for buying a home. As the applicant gets a prequalification, the lending institution issues a document to that effect. Prequalifying for a home loan creates an awareness in the applicant about a certain loan amount, which he can get, once the final approval is done by the lending institution. The applicant gets a clear idea about how much amount he can spend for buying a home, and search accordingly.
Prequalifying for a loan is not so difficult, if you provide the right information. On the basis of that information, the lender will decide on whether to issue a prequalification or not. While analyzing your application, the lending institution mainly concentrates on two aspects – your ability to repay the loan, and the willingness for the same.
Once you determine the type of house, the area you like, and the price range, locate the potential lenders. In order to prequalify for a home loan, submit an application to the lender you choose. You have to provide some information regarding your assets, debts, credit, and employment status, to the lending institution. The lender may require proof to substantiate the data you have provided. Once you submit all the documents and information, the loan officer will analyze them, so as to decide whether the applicant is eligible for a home loan of a certain amount. The officer will evaluate the information, and calculate a debt income ratio. The lending institution may also get your credit report.
As far as the debt to income ratio is concerned, the lower the percentage, it will be better. A credit rating of above 680 is considered good. If both these values are favorable for you, your chances of getting a home loan at best interest rates, will be high. Once the loan officer is done with evaluation of the data provided by you, he/she will come up with an estimate, stating the loan amount, for which the applicant is eligible. As the applicant gets prequalified, he/she will get a loan prequalification letter from the lending institution. Before applying for the same, the applicant may also make a rough estimate, using online mortgage calculators.