Home buying financing and the loan prequalification process
Before you start house hunting, it’s essential to understand how much you can afford—and that starts with loan prequalification.
What is Loan Prequalification?
Loan prequalification is an initial assessment from a lender that gives you an estimate of how much money you might be able to borrow for a home loan. It’s informal and non-binding, but it’s a helpful first step in the home buying process.
How the Prequalification Process Works
- Choose a Lender
Shop around and compare lenders—banks, credit unions, and mortgage brokers all offer loan prequalification. - Provide Basic Financial Information
You’ll typically need to share:
- Your income
- Estimated debt and monthly expenses
- Employment history
- Estimated credit score
- Your income
- Receive a Prequalification Estimate
Based on the information you provide, the lender will give you an estimate of:
- How much you may qualify to borrow
- The types of loans that may suit your situation
- An estimated interest rate
- How much you may qualify to borrow
Prequalification vs. Pre-Approval
Many first-time buyers confuse these two steps, but they are not the same:
- Prequalification is a quick estimate with no credit check required.
- Pre-Approval is a more formal process that requires a credit check and financial documentation. It carries more weight when making an offer on a home.
Most real estate agents and sellers prefer buyers to be pre-approved, but prequalification is a smart first step to get the ball rolling.
Why Prequalification is Important
- Helps you set a realistic price range before shopping for homes
- Gives you a chance to compare lenders and loan options early
- Can uncover credit issues or income gaps that may affect your approval later
- Allows you to plan for the down payment and closing costs
Next Steps After Prequalification
Once you’re prequalified, take the next step by:
- Improving your credit or saving more (if needed)
- Getting pre-approved with a lender
- Working with a real estate agent to begin your home search
First-Time Buyer Tip
Many programs in Ohio—like those from the Ohio Housing Finance Agency (OHFA)—offer low-interest loans, down payment assistance, and grants that can be layered with your mortgage. Ask your lender if you qualify for one of these programs.
