When you find the home that you want to make an offer on, it will be necessary for you to prove to the seller that you have talked with a lender and you are qualified to buy their home. Even before you look at your first home, go through the mortgage prequalification/preapproval process. This will ensure that you are looking at the price of home that fits your budget and desired monthly payment.

Prequalification is an informal discussion between the buyer and the company that is going to give you the money to buy your home. The lender provides an opinion of the loan amount that you can borrow based solely on what you, the borrower, tell the lender. The lender doesn’t verify anything and is not bound to make the loan when you’re ready to buy. Lenders to not charge for prequalification.

Preapproval is based on documented and verified information regarding your likelihood of continued employment, your income, your liabilities, and the cash you have available to close on a home purchase. Going through the preapproval process is a sign of your seriousness to house sellers. A lender’s preapproval letter is considerably stronger than a prequalification letter. In a multiply-offer situation where more than one prospective buyer bids on a home at the same time, buyers who have been preapproved for a loan have an advantage over buyers who have not been proven creditworthy.