Skip the guesswork: Start with a preapproval
One of the first steps in buying a home is deciding how much you can afford. But while you may think you know what you can afford, based on your budget, will a mortgage lender agree?
That's where getting prequalifiedFootnote1 or preapprovedFootnote2 by a lender can help. Here's some basic information about the benefits of each option.
What is prequalification?
Prequalification is easy, it's fast, there's no obligation, and you can apply to several lenders to compare offers. That makes it a good option for someone who is just beginning to explore the possibility of buying a home.
To apply, you don't need a lot of detailed documentation. Many lenders don't even pull your credit score, but base their estimate on what you tell them about your income and current debts. Keep in mind, though, that the lender is not obligated to lend to you if you don't meet their criteria when you actually apply.
What is preapproval?
Preapproval is a bigger step toward confirming what you can borrow. Unlike prequalification, you'll need to complete a mortgage application and supply income and debt verifications like current pay stubs, tax returns and bank account statements. The lender will also pull your credit history and credit score.
The benefit of the more extensive process is that the lender can give you a much firmer estimate about what you can borrow. The extra details can give them confidence that you will be able to afford to repay what you borrow.
Getting preapproved has several benefits.
- You can get preapproved by several lenders within about 30 to 45 days without affecting your credit score. This allows you to shop and compare rates.
- Having a preapproval letter gives you more credibility with home sellers, since they can be more confident you can actually get a mortgage. Some sellers won't even consider offers from buyers who aren't preapproved.
- Most preapprovals are good for 90 days, so you have plenty of time to search for the right home. You can also renew the preapproval by submitting updated paperwork.
- Once you find a home, preapproval can help speed up the rest of the mortgage process, since a large part of the work has already been done.
Preapproval is not a guarantee.
Lenders can't make a final decision until you give them a purchase contract, so they can confirm that the home is valuable enough to serve as collateral for what you want to borrow. In addition, if you have major financial changes such as loss of income or increase in debt, that could affect your final approval.
What if you get turned down?
Don't be discouraged! Here's how to increase the odds of approval if you try again:
- Shrink your budget. It may be that a lender will be willing to lend a smaller amount.
- Make a larger down payment. However, this may mean waiting while you save extra money.
- Beef up your credit score. Pay off debt, make sure all your payments are on time, and avoid opening up other types of credit such as new credit cards or a car loan.
The bottom line is that prequalification and preapproval are both great steps to take on your way to achieving your home buying goals.
A note from your lending specialist
If you'd like to get prequalified or preapproved, Bank of America's Digital Mortgage Experience® makes it easy to apply online, upload documents, and more. Plus, you can connect with me if you need help.
1 Prequalification is neither preapproval nor a commitment to lend; you must submit additional information for review and approval.
2 Final loan approval is subject to satisfactory appraisal and title review and no change in borrower credit and financial condition. Preapproval is subject to terms and conditions and timely submission of required documentation; ask your Lending Specialist for details. Preapproval does not commit to the continued availability of the loan program. The interest rate shown in a preapproval is based on our current pricing and is not locked. You may choose to lock an interest rate after we receive the complete and executed purchase contract. Borrower must submit purchase contract within 90 days of preapproval. If the rate at time of lock is higher, or a rate lock expires prior to funding, or for adjustable-rate loan programs when the index value rises, we must determine your ability to repay the loan at the higher rate, which may lower the loan amount or invalidate the preapproval. Not available on all loan products. Not available on refinance loans.
MAP5523114 | 03/2023