Mortgage Prequalification

Many lenders allow customers to begin the mortgage application process before they find - or even look for - a new house. Prequalification generally entails the review of the applicant's finances - income, debt, credit, etc. - and the issuance of a commitment for a mortgage. Prequalification is subject to the purchase of a home that meets certain conditions, the most important of which is a minimum valuation as established by an appraisal.

Prequalification offers the home shopper several significant advantages.

• Knowing in advance how large a mortgage can be obtained is extremely useful when determining affordability and setting a target price range.
• A prequalified buyer has a distinct advantage in getting an offer accepted by a seller. The prequalification eliminates the need for an open-ended financing contingency (though an appraisal and a limited financing contingency will still be required), making the deal a safer one for the seller. This is particularly useful in tight real estate markets.

Since there is little downside, prequalification makes sense for most home shoppers.