Competition for housing is severe in many regions across the United States as a result of historically low levels of available housing inventory and impending rises in mortgage rates. Many people and families are opting to look for a new house right now because they want to purchase their dream home before they are priced out of the market. In this seller’s market, lenders have a special chance to entice consumers by providing a prequalification that will give their offer a competitive edge.
What is a prequalification for a mortgage?
Prequalification is a preliminary phase in the loan process that gives potential borrowers an idea of how much finance they might be eligible for and what financing possibilities they might have. The borrower could be requested to supply details such recent pay stub amounts, loan payments, and bank account balances by the lender. The lender can rapidly calculate how much they can lend to the borrower using this information.
An additional soft pull credit check will be done by the lender. It allows the lender to get a quick overview of the borrower’s credit without having an adverse impact on their credit score or paying the full cost of a hard inquiry. They learn the applicant’s credit score, financial background, and bankruptcy reports from a soft pull, which closely resembles the data they will find on the tri-merge credit report.
What Justifies Lender Prequalifications?
Many sellers in a competitive real estate market are receiving many offers for their houses, and prospective buyers are looking for methods to differentiate their offers from the competition. While a cash offer is undoubtedly attractive to sellers, most homeowners lack the financial means to make an all-cash offer.
By informing the seller that the buyer has the resources to qualify for a loan to support their offer, a prequalification letter from a respected lender can help buyers enhance their offer. Prequalification is a reasonable certification from a lender that a buyer is creditworthy and can afford the property they are trying to buy based on the information provided by the borrower and a soft pull credit report, even if it is not a guarantee of funding.
What Are the Advantages of a Prequalification for Lenders?
The advantages of employing a prequalification realized by the lender are enormous.
Boosts Loan Approval Rates
Mortgage lenders might utilize a prequalification soft pull as a first line of defense to determine whether or not a borrower will be a strong candidate for a loan. Prequalification red flags can suggest that an applicant has credit issues that need to be fixed before the lender moves on with a hard credit inquiry or a full mortgage application for the borrower.
The collecting of trended data from many credit reporting sources for a tri-merge credit report can be expensive. Instead, a prequalification generates a credit snapshot using information from just one credit reporting agency, which costs the lender substantially less each report. Before paying for appraisals, inspections, or underwriting, any issues that pop up on a prequalification can be discussed with the borrower.
The loan origination system of a lender can conduct a soft-pull prequalification the same day. Lenders can rapidly access information and give borrowers a prequalification letter and can work with their realtor to create a competitive offer.
It’s essential to have accurate information to find qualified borrowers. In comparison to a hard investigation, prequalification has a smaller scope and depth. Prior to either side becoming overly invested in the loan approval process, lenders can identify whether applicants are credit-worthy using the important information supplied in a soft-pull.
How Can Prequalification Help Lenders Market Their Products?
Because they think a mortgage inquiry may harm their credit score, many consumers are wary of having their credit pulled in order to get preapproved for a loan. Multiple hard queries in a short period of time can lower consumer credit scores, but a prequalification provides access to critical credit information through a soft draw that won’t lower their credit score.
The use of a mortgage prequalification is advantageous to both lenders and borrowers. Prequalification enables both parties to learn crucial details about the possibility that a loan will close without incident. In addition to assisting with the loan process, it can be a helpful marketing tool for mortgage lenders to attract additional clients.