Prequalification and preapproval

Once you start house-hunting, it’s smart to get prequalified for a mortgage. This is a letter from a mortgage lender stating that you will probably meet its criteria for a mortgage based on your income, debt load, and credit history. But you’ll want to be sure that the real estate broker you work with will agree with the lender’s assessment of what you can borrow before starting to show you properties. The broker wants to be sure you’ll be able to afford the home you choose and finalize the deal.

You might even consider going a step further and trying to get preapproved. This means your mortgage lender guarantees you can borrow a certain loan amount. If you’re in a particularly competitive housing market, where many buyers all want the same house, a preapproval letter can set you apart from the crowd and may give you an advantage when bidding on a house.

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