Prequalification describes the process in which a lender evaluates a borrower’s capacity for repaying a mortgage. During the prequalification process, borrowers will be asked to provide certain documentation, such as pay stubs, bank statements, income tax returns and other applicable documents that may shed light on their ability or inability to pay. Once the borrower has been pre-qualified, the lender usually gives the borrower a prequalification letter that they can show their real estate agent. The real estate agent will then have an idea of the borrower’s budget and can find homes for sale in the right price range. The prequalification process is a preliminary assessment, and borrowers may be asked for more detailed information regarding their financial position when a sales contract is submitted. The prequalification confirms to the borrower that the lender is willing to finance his or her home purchase.
