Wednesday, December 7, 2011

Why Prequalify for a Mortgage Loan?


Why Prequalify for a Mortgage Loan? | In the past it was easy to apply for and receive a mortgage loan. Lenders were open to entertaining loan applications that showed no verifiable income and that could have been rather risky investments. As the loan market tightened significantly over the last few years, prequalifying for a mortgage has become a necessity. The process itself is rather easy. Applicants contact a lender of their choice and discuss the various mortgage loans available. The applicant then gives very basic information with respect to debts, income, liabilities, and also offers permission for the lender to pull a credit report. Once all the data is available to the lender, the bank determines how much money they would be willing to lend to such a borrower.

It is important to realize that prequalifying for a mortgage is not the same as applying for it. Instead, it simply presents a rough outline of an applicants financial facts to the underwriting department for evaluation, and based on the facts given, the underwriters devise a rough amount of funds they are willing to invest in this consumer. Banks do not charge any up front fees for prequalifying borrowers and instead provide them with a document that states that the consumer is a serious buyer who has the backing of a bank. This explains in part why prequalifying for a mortgage is an excellent idea.

Prospective home sellers see a banks prequalification letter as a guarantee that they are dealing with a potential buyer who is serious about the transaction. This virtually guarantees that the real estate deal will not fail for lack of funding. Mind you, a prequalification is not a guarantee for a loan, but it is more of a probability that the bank based on the information they were given determines that the consumer is an adequate credit risk and is willing to lend a certain amount of money. Moreover, it determines a spending cap for the consumer. This also puts sellers at ease, since it only brings prequalified buyers who actually can afford the loan needed to their doors.

A seller who is working with a number of potential offers for a home will be careful to choose the would-be buyer who looks like s/he will be part of an easy real estate transaction. Sure, in some cases a buyer might accept the offer from a buyer who did not prequalify with a lender but is wi lling to pay more than the asking price; in most cases, however, prequalification ushers a would-be buyer to the front of the line. What is more, it has the potential to put both buyers and sellers into a more favorable negotiation.

Lenders appreciate working with buyers who are prequalified since it helps them to already establish a file on the would-be borrower, and the transaction when s/he finds a property that suits can proceed quickly. As a matter of fact, with a prequalification, real estate buyers can actually ahead of time determine a convenient closing date and make it part of the real estate transaction.

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