One of the most important things that you need to know before you start shopping for a home is your prequalification status. This is one of those terms that many inexperienced home buyers get confused about. Many home buyers think that prequalification is the same thing as preapproval, but that simply isn’t the case. Your prequalification is the actual amount of a mortgage that you can afford and that number is based on your current financial situation. If you’ve been confused about what it means to prequalify for a mortgage, here are some common misunderstandings and real answers to give you a better understanding.
Myth 1: Getting Prequalified is the Same as Getting a Mortgage Loan
Many people think that once you are prequalified for a certain amount, it is the same as signing up for a loan. But that is simply not true. A mortgage loan is much more involved and it is a much larger commitment than getting prequalified. Prequalified just tells you how much you can afford. The commitment begins when you get approved for a mortgage loan.
Myth 2: All Lenders are the Same When Getting Prequalified
You might think that getting prequalified is going to be the same regardless of the lender. But when you are going through the prequalification process, you want to make sure you find a company that will work with you. During this stage, the lender will do some coaching and advising so you want to be sure you work with a company that you are comfortable with. If you do not feel comfortable working with them during the prequalification stage, you could be asking for trouble in the next phase of your mortgage loan shopping.
Myth 3: No Preparation is Needed for a Prequalification
Getting prequalified is not as difficult as getting approved for a loan, but much of the process is the same and it does take some preparation on your part. In fact, you should prepare for the prequalification phase the same way you prepare for the mortgage approval stage. You may not be required to bring any paperwork when you are getting prequalified, but it will help you get a more accurate figure of what you will be able to afford. Bring your most current pay stubs with you along with tax returns from the last two years. You should also be able to prove your current income and a recent credit report. This will give the lender a better idea of your financial situation and they can be more accurate with your prequalification amount.
Myth 4: Stretching the Truth about Your Financial Situation has No Long-Term Effects
Many first time home buyers go into the prequalification stage thinking that they can exaggerate their income or their current financial status so they can get prequalified for a larger amount. But this can be detrimental to the entire process. For one thing, if you are prequalified for a larger amount than you can afford because you lied about some numbers, you could end up in major financial trouble if you get approved for that loan amount. But you should also be honest about your income. Don’t hide anything because you could lose credibility with the lender and they could decide not to work with you any longer.
These four misconceptions about getting prequalified for a mortgage are very common. But now that you know the truth, you can get a more accurate figure when you decide to go through the prequalification stage for your next home.