How to Prequalify for a Home Loan as a First-Time Buyer

By: Valencia Higuera Updated By: Ryan Tronier Reviewed By: Paul Centopani
August 23, 2023 - 13 min read

What does it mean to prequalify for a home loan?

As you prepare to buy a home, you’ll likely come across the term “loan prequalification.”

This is the first step in the mortgage process, where a lender provides a ballpark estimate of how much house you can afford. Prequalification is typically quick and easy. You don’t have to provide documents to the lender, and you only answer a few short questions.

By getting prequalified, you can be sure you’re shopping for homes within your true price range, and not getting your heart set on a home you won’t be able to afford.

Verify your home buying eligibility. Start here

In this article (Skip to...)

What is mortgage prequalification?

Getting prequalified is the earliest step in the home-buying process for many first-time buyers. When you prequalify for a home loan, you’re getting a general estimate of how much a lender will allow you to borrow.

Verify your home buying eligibility. Start here

Prequalification gives you a clearer picture of your home-buying budget, potential interest rate, and the loan options available to you. Many first-time home buyers will start with prequalification in the early stages of their buying process, but get preapproved before seriously beginning to house hunt.

“You can also prequalify and preapprove at the same time,” notes Jon Meyer, The Mortgage Reports loan expert and licensed MLO. “If you are seriously in the market for a new home, it’s a good idea to do so.”

Why is it important to prequalify for a home loan?

Prequalifying for a mortgage loan isn’t only useful for getting a ballpark estimate of your budget. It can be the first step of your home-buying process and an opportunity to shop around and compare loan offers.

Keep in mind that a home’s purchase price isn’t the only thing that impacts affordability. Your mortgage rate also plays a big role in determining how much house you can afford and what your monthly mortgage payment will be. And you won’t know your rate until you’ve talked to a lender.

Knowing your prequalified rate and loan amount is a crucial first step to house hunting because it ensures you’re looking at homes and making offers within your price range.

Process of prequalifying for a home loan

If you’re venturing into the housing market for the first time, the idea of getting prequalified might seem daunting. However, the process is quite straightforward. In many instances, you won’t even need to meet with a lender in person. A multitude of banks and mortgage companies offer online prequalification forms that are quick and easy to fill out.

Get prequalified for a mortgage. Start here

Here are the steps to prequalify as a first-time home buyer:

  1. Navigate to a lender’s website and locate the prequalification form. Look for options like “apply online” or “get prequalified”
  2. You'll then need to provide the lender with some basic financial information. This typically includes your total monthly income (before taxes), any additional sources of income, and your monthly debt payments
  3. After you've submitted the online prequalification form, the lender may carry out a soft credit check. These checks don’t affect your credit score and are a way for lenders to pre-screen applicants to see if they meet the basic qualifications for homeownership
  4. If you meet the lending requirements based on your credit profile and the information you've provided, the lender will issue a prequalification. This will indicate your likely interest rate and the maximum loan amount you could borrow

It’s important to note that a prequalification is not a commitment from the lender to loan you money. The rate and loan amount you’re offered aren’t binding until you’ve completed a full loan application and submitted all your financial documents. The lender’s underwriting process will then verify your eligibility, rate, and loan size.

Despite this, prequalification is a valuable initial step. It can help determine your home buying budget and set you on the right path for house hunting.

Prequalification vs. preapproval

Some people use the terms prequalify and preapproval interchangeably, yet these terms are not the same. To be clear, neither a prequalification nor a preapproval guarantees a mortgage. Even so, when you’re ready to make an offer on a property, some home sellers only accept offers from preapproved buyers.

Verify your home buying eligibility. Start here

For both processes, you’ll provide personal and financial information to a loan officer. The difference, though, is that lenders base prequalifications on self-reported information. In other words, the lender doesn’t verify this information.

The preapproval process, on the other hand, involves verification of stated income. Lenders will conduct a hard credit check, analyze your credit report, and review supporting documentation like your W-2s, tax returns, social security number, and bank account statements.

A preapproval is a stronger indication of mortgage approval, which builds your credibility as a serious buyer. Some sellers and agents won’t accept offers from buyers who are not preapproved because not having lender approval in hand can slow down your mortgage loan application.

Mortgage PrequalificationMortgage Preapproval
BenefitYou can house hunt with a general idea of how much you can affordYou’re ready to make an offer on your dream home with confidence
ProcessAnswer a few questions and a soft credit checkSubmit financial documents and a hard credit check
SpeedTypically, a same-day decisionDecision within 10 business days

Begin your mortgage preapproval. Start here

Should I get prequalified or preapproved?

Deciding between prequalification and preapproval largely depends on your individual circumstances and where you are in your home buying journey. Here are a few tips to help you make the decision:

  • Consider your timeline. If you’re in the early stages of considering homeownership and are not quite ready to buy, prequalification might be the best option. It’s a quick and easy way to get a ballpark figure of what you might be able to borrow, helping you to start thinking about what you can afford
  • Evaluate your readiness to buy. If you’re ready to start seriously looking at homes and making offers, preapproval is likely the better choice. Preapproval involves a more thorough review of your finances and can make you a more attractive buyer to sellers
  • Think about the market. In a competitive housing market, having a preapproval can give you an edge over other buyers who only have a prequalification or no mortgage approval at all. Sellers are more likely to accept offers from preapproved buyers because it shows a lender’s commitment to the loan
  • Reflect on your financial situation. If you’re unsure about your financial standing or creditworthiness, starting with a prequalification can give you a better idea of whether you’re ready to take on a mortgage. If the prequalification reveals that you might not be able to borrow as much as you’d hoped, it could be a signal to spend some time improving your credit or saving for a larger down payment before moving on to preapproval

So, should you get prequalified or preapproved?

If you’re just starting out and want to get an idea of your budget, prequalification might be the way to go.

But if you’re ready to start making offers and want to stand out to sellers, preapproval could be the better choice.

Remember, it’s not an either/or situation. Many home buyers start with prequalification and then move on to preapproval as they get more serious in their search.

How to increase your prequalification amount

If you’re in the early stages of the home-buying process, prequalification can help you ballpark your budget. If you don’t prequalify for the loan amounts that you were hoping for, here are a few tips to afford more house.

Verify your home buying eligibility. Start here

  • Improve your credit score. You can raise your credit score quickly by using less credit, paying bills on time each month, and correcting any errors on your credit report
  • Reducing your amount of debt. Paying down debt improves your debt-to-income ratio (DTI), which is one of the factors that lenders use to determine how much of a monthly payment you can afford
  • Increase your income. A higher monthly gross income will also improve your DTI ratio, which may result in qualifying for larger loan amounts
  • Opt for an adjustable-rate loan. These types of mortgages begin with a lower interest rate than a fixed-rate loan. But after their introductory period, the rate fluctuates with the market. Many buyers will find they can afford more home with an adjustable-rate mortgage.

Do I need to get prequalified?

You might ask, is a prequalification really necessary when buying a home? The short answer is no. There’s no rule that says you must prequalify for a home loan. However, prequalification has its benefits.

Verify your home buying eligibility. Start here

Getting prequalified gives you clues about potential eligibility for a mortgage loan, as well as an idea of your home-buying budget. This is need-to-know information, especially if you’re questioning whether your income is enough to afford a home purchase.

For example, after a review of your prequalification form, a lender might say you prequalify for a mortgage up to $150,000. If you believe you’re able to find a suitable property within this price range, you might proceed with the mortgage application process. But if not, you could postpone the mortgage and wait until your financial situation improves.

But although a prequalification is a helpful first step and provides information about budgets, it doesn’t carry as much weight as a preapproval.

“Even if it’s not a necessity, prequalification is always good to do ahead of rate shopping, especially if you don’t get preapproved,” says Jon Meyer. “Getting prequalified will help you understand your limits.”

Verify your home buying eligibility. Start here

How to get preapproved for a home loan

To prepare for a preapproval, gather your documents early and submit these to a mortgage lender in a timely manner.

Borrowers typically need to submit the following documents along with their mortgage application:

  • Tax returns and W-2s from the past two years
  • Recent pay stubs
  • Bank statements for savings accounts and other assets
  • A copy of your driver’s license
  • Employment verification
  • Rental history
  • Personal information like your address and Social Security number
Verify your home buying eligibility. Start here

Depending on your circumstances, you might also provide a gift letter, a year-to-date Profit and Loss statement (if you’re self-employed), as well as court-ordered information about alimony or child support, if using this income for qualifying purposes.

If you have alternative sources of income, issues in your credit history, or unusual deposits in your bank account, you should be prepared to explain these anomalies to your loan officer.

How to prequalify for a home loan FAQ

How hard is it to prequalify for a home loan?

Getting prequalified is generally not too hard for most home buyers because it doesn’t involve verifying your income or submitting bank statements and tax returns, like a preapproval will. Instead, you’ll simply answer questions about your finances before a lender issues a decision.

How long does prequalification take for a mortgage loan?

Many home buyers can get prequalified within an hour. But the amount of time it will take you to prequalify depends on the lender and your personal finances. Some lenders can issue a prequalification in minutes to those with straightforward financial situations, while other lenders may take longer if you’re self-employed or your credit history isn’t well established.

How long does prequalificaiton last?

A mortgage prequalification letter doesn’t normally expire. Unlike preapproval letters, which are usually valid for up to 90 days, a prequalification should last indefinitely as long as your financial circumstances don’t change. However, if you’ve switched employers, lost your job, or maxed out any credit cards, you should apply for prequalification again.

When should I prequalify for a home loan?

You should consider prequalifying for a home loan as soon as you start thinking about buying a house. Prequalification gives you an estimate of how much you might be able to borrow based on your income, debts, and credit history. This can guide your home search by giving you a realistic idea of your budget. It’s a good first step in the home buying process, even before you start working with a real estate agent or looking at properties. However, keep in mind that prequalification is just an estimate and doesn’t guarantee you’ll get the loan.

When should I get preapproved?

You should aim to get preapproved for a mortgage once you’re serious about buying a home and you’re ready to start making offers. A mortgage preapproval is a more formal process than prequalification and involves a thorough check of your financial background and credit status. This results in a specific loan amount that you’re approved for, giving you a clear idea of what you can afford.

Does prequalification affect your credit score?

Prequalification should not affect your credit score. The three major credit bureaus consider a prequalification a soft inquiry, which means it won’t hurt your score in any way.

Can you get prequalified for a refinance?

Yes. When you prequalify for a home refinance with multiple lenders, you’ll be able to compare loan options and interest rates, along with fees for appraisal, origination, and other closing costs. Keep in mind that these loan terms will likely be updated once you lock in your true rate and submit your final loan application. But prequalifying for a refinance loan will help you comparison shop without hurting your credit score.

How can I use a mortgage calculator when prequalifying for a home loan?

A mortgage calculator can be a valuable tool when you’re prequalifying for a home loan. By inputting details such as your income, down payment, and estimated interest rate, you can get an idea of your potential mortgage payments. This can help you understand the financial implications of different loan programs, including FHA loans. Remember, these calculations often include estimates for additional costs like mortgage insurance, which is typically required for homeowners who make a down payment of less than 20 percent.

How do different loan programs affect the prequalification process for a home loan?

Different loan programs can significantly impact the prequalification process for a home loan. For example, an FHA loan, which is backed by the Federal Housing Administration, often allows for lower credit scores and smaller down payments than conventional loans. This can make homeownership more accessible for some buyers. However, FHA loans usually require the borrower to pay mortgage insurance, which can increase the overall cost of the loan. Using a mortgage calculator can help you understand how these factors might affect your potential mortgage payments.

Check your mortgage eligibility

Before you can get serious about buying a home, you need to know whether you’ll qualify for a loan and for how much you.

Mortgage prequalification will help you look for homes in your price range. And, when the time comes, your preapproval letter will give you the power to make a competitive offer on your dream home.

If you’re ready to buy, don’t wait on getting preapproved. Make sure you’re eligible and check to see the types of loans and interest rates available to you.

Time to make a move? Let us find the right mortgage for you

Valencia Higuera
Authored By: Valencia Higuera
The Mortgage Reports contributor
Valencia Higuera is a freelance writer from Chesapeake, Virginia. As a personal finance and health junkie, she enjoys all things related to budgeting, saving money, fitness, and healthy living.
Ryan Tronier
Updated By: Ryan Tronier
The Mortgage Reports Editor
Ryan Tronier is a personal finance writer and editor. His work has been published on NBC, ABC, USATODAY, Yahoo Finance, MSN Money, and more. Ryan is the former managing editor of the finance website Sapling, as well as the former personal finance editor at Slickdeals.
Paul Centopani
Reviewed By: Paul Centopani
The Mortgage Reports Editor
Paul Centopani is a writer and editor who started covering the lending and housing markets in 2018. Previous to joining The Mortgage Reports, he was a reporter for National Mortgage News. Paul grew up in Connecticut, graduated from Binghamton University and now lives in Chicago after a decade in New York and the D.C. area.