If you're shopping for a house or getting ready to make another significant financial investment, getting prequalified for a loan can help streamline the process by helping you to have a clear picture of your budget. A prequalification is essentially an official estimate from your lending institution of how much money they are willing to lend you based on the information you provide them. It's a fairly straightforward process to prequalify for a loan.
Step 1
Calculate your total monthly housing-to-income ratio by adding up all your monthly housing costs, including rent or mortgage payments, association fees, taxes and homeowners insurance.
Step 2
Calculate your total monthly expenses by adding your total monthly housing costs to any monthly debt or loan payments.
Step 3
Calculate your total monthly income, and find proof--such as pay stubs or tax statements--of that income. Also make a note of any savings accounts, money market funds or other financial reserves you have available.
Step 4
Determine how much money you have to spend on your down payment.
Step 5
Visit a lender, either in person or over the phone, for a prequalification meeting, bringing the information you have collected with you. The lender will review the information you provide and run a check through a credit agency to determine what loan amount you prequalify for.
Tips and Warnings
- Some institutions have online forms that you can fill out to prequalify for a loan, which may be useful if you're familiar with the process. If it's your first time applying for a loan, though, it's usually easier to work with a live representative to ensure that you provide your lender with accurate information. Consider checking your credit score yourself before you meet with a lender to make sure there are no errors on it that could lower your credit score.
- Be completely honest when you meet with your lender to prequalify for a loan. If the information you provide is inaccurate, the loan amount you qualify for may be different from your prequalification amount.
Member Comments