Getting Prequalified for a mortgage is the first step in the buying process. Prequalification lets you know whether you will be able to borrow money from a bank or other lender, what your maximum monthly payment can be, and even “holds” an interest rate for you. The reason that this should be the first thing you do is that you want to set up the framework for what you can spend before you start shopping for homes. The last thing you want to do is start to look at things that you can’t afford, as it is just bound to set you up for disappointment.
But here’s the thing – not all pre-qualifications are the same, and choosing who is to help you is a more important decision than you might think. Many banks will do a pre-qualification based upon your “ratios” only. The ratios are the percentage of your income that you are allowed to spend on housing. For example, at most financial institutions, you are only allowed to spend up to 32% of your total income on your housing needs.
There’s a lot that should be considered when you go for a mortgage pre-qualification. First, the person doing the pre-qualification should also investigate your credit bureau – it’s a good time to find out if there are any skeletons that you may not know about – particularly if they are going to harm you when you seek final approval. Additionally, this is a great time to rate shop! However, did you know that if you go to multiple lenders who do a credit check each – that it can actually harm your credit? Consider using a mortgage broker, and you’ll have someone shop your “situation” around to the lenders for you. They will give you some options that you can choose from based upon criteria like rates, terms, features and more. There’s typically no cost for this service that the borrower pays – it’s the lenders who pay these folks. You can, of course, get prequalified by your bank or credit union as well, but it definitely pays to get a second opinion via a mortgage broker.