What is mortgage prequalification and how does it work?

Mortgage prequalification is often the first step in the home-buying process. It helps prospective buyers estimate how much house they may be able to afford before shopping for a home. A mortgage lender reviews basic financial information, such as your income, debts, assets and credit profile, to provide an estimated borrowing range and help you better understand your home financing options.

How to prequalify for a mortgage

Many lenders offer mortgage prequalification online, over the phone or in person. To determine an estimated loan amount, they may review:

• Income
• Employment history
• Credit history
• Savings and assets
• Current debts and financial obligations

Based on this information, the lender can often provide a mortgage prequalification letter the same day, outlining an estimated loan amount you may qualify for.

Benefits of mortgage prequalification

Mortgage prequalification can help simplify your homebuying journey by providing an estimate of how much you may be able to borrow. With a better understanding of your budget, you can focus on homes within your price range and shop with more confidence. The process may also uncover potential financial concerns, such as credit issues or debt-to-income challenges, giving you time to address them before applying for a mortgage. Additionally, a prequalification letter can add credibility to your offer by showing sellers you're prepared and ready to buy. In many cases, sellers may not consider or accept an offer without proof that a buyer has been prequalified.

When should you get prequalified?

If you're planning to buy a home within the next few months, getting prequalified can help you prepare for the homebuying journey. While every lender has different guidelines, many mortgage prequalifications are valid for approximately 60 to 90 days.

Documents you may need for a mortgage prequalification

Requirements vary by lender, but you may be asked to provide:

• Pay stubs
• W-2s or tax returns
• Bank statements
• Identification
• Information about current debts and financial obligations

What to do after getting prequalified

After receiving your prequalification estimate, review your budget and determine whether the loan amount aligns with your homeownership goals. If needed, you can take steps to strengthen your financial profile, such as paying down debt, increasing savings or improving your credit. Once you have a better understanding of your potential buying power, you can begin working with a real estate agent and focus your home search on properties that fit your budget and financial goals.

What to avoid after getting prequalified

While shopping for a home, try to avoid:

• Opening new credit accounts
• Financing large purchases
• Making large unexplained bank deposits
• Changing jobs without speaking to your lender
• Missing loan or credit card payments

It is important to maintain consistent financial habits to help ensure a smooth mortgage process.

Get prequalified today

Mortgage prequalification is a valuable first step toward homeownership. It can help you estimate your buying power, establish a realistic budget and prepare for the mortgage process. By understanding your financing options early, you'll be better equipped to shop for a home with confidence. If you're considering buying a home, connect with one of our lenders to learn more about your options, get answers to your questions and receive guidance throughout the mortgage process.

This article is for educational purposes only and provides general mortgage information. Products, services, processes and lending criteria described in this article may differ from those available through Simmons Bank. For more information on available products and services, please contact a Simmons Bank Mortgage Loan Officer.