A mortgage prequalification letter is a document a borrower may be issued early in the mortgage-seeking process. This document states that based on the information the borrower has provided and his credit score, he has the ability to qualify for a loan in the amount listed. This letter does not mean the borrower is approved for a loan, however. In order to gain approval for a mortgage, an individual typically has to provide a range of additional information and submit to a verification process. An individual may seek a mortgage prequalification letter for a couple of reasons: one is to determine the loan amount for which he is likely to qualify, and another is to demonstrate to sellers and real estate agents that he is serious about purchasing a property.
When a person initially begins the process of buying real estate, one of his first considerations usually is his ability to secure a mortgage and the amount of money for which he can qualify. To get an idea of what to expect without going through a complicated process, he can seek a mortgage prequalification letter. This is a letter a mortgage lender provides that states that the borrower is likely to qualify for a loan in a specific amount. The prequalification often involves a quick look at the borrower's financial situation, but more information will be required to gain approval for a mortgage.
Sometimes people are confused about the difference between a mortgage prequalification letter and a mortgage pre-approval letter. A mortgage pre-approval letter is provided after a much more in-depth process than the one used for a mortgage prequalification. For example, a potential borrower usually must provide proof of income and resources to obtain a mortgage pre-approval letter. He must also complete a verification process before he can be pre-approved. A mortgage pre-approval doesn’t mean a person will obtain a loan — it basically means if the borrower meets the lender’s conditions, he will likely be approved for a loan, but the lender can still deny the loan.
A mortgage prequalification letter often helps a potential borrower in a couple of ways. First, it gives the borrower an idea of the price range he should stick to when he is searching for properties to buy. Second, it helps him ensure that real estate agents and sellers will take him seriously when he is viewing properties as well as when he decides to make an offer.