Getting pre-qualified for a mortgage loan does not require as much time and effort than getting pre-approved for a home loan. The process for pre-qualification is a simple process because your lender does not need to verify your income or debts. This process can take over the phone and it can be completed in less than 30 minutes. Finally, the mortgage lenders will briefly tell you the amount of money you will be qualified for. On the other hand, in order to get pre-approved, you must verify your income by showing recent paycheck stubs, income-tax returns, and bank statements to your lender. This process takes much more time and requires all the documents to be present.

Steps for Getting a Pre-Qualification Letter

Step 1
Call any mortgage lender or several if you are interested in comparing the different interest rates and fees that the lenders are offering. Ensure that the lender's have appropriate license for their state. Tell this lender that you are beginning the home-search process, and that you're interested in pre-qualification. In the pre-qualifying process, the lenders will consider the interest rate and term of the mortgage to determine the amount of the loan (The higher the interest rate, the higher your monthly payments will be--all terms and principal being equal).

Higher interests and monthly payments can mean an approval for a lower principal amount. On the other hand, the amount of the down payment can also affect the outcome. In many cases, the down payment comes from sources outside of your own assets, such as a parent's contribution for the purchase of a first home. If you make a higher down payment, the mortgage principal amount will be reduced and you may be able to qualify for a larger, more expensive home.

Step 2
Give your lender an estimate of your gross monthly income (your income before taxes are taken out), and your monthly debt obligations. This information is important. The amount of loan you receive is based on your debt-to-income ratios. Lenders typically want your total mortgage payment, including principal, interest, taxes and insurance, to total up to no more than 28 percent of your gross monthly income. They also want your total monthly debts, which can include your new estimated mortgage payments, car payments and minimum credit-card payments to total no more than 36 percent of your gross monthly income.

Step 3
Answer all the questions that your lender asks. For instance, your lender might ask if you have declared bankruptcy within the last seven to 10 years or whether you've gone through a recent foreclosure. Answer these questions honestly. Once your lender has all the information they will prepare a prequalification letter for you. The letter should state that your initial financial and credit information has been reviewed and it looks good, however, it will also state that the letter is not a guarantee of a loan.

Step 4
Give your lender authorization to pull your credit report. The report should include a FICO (Fair, Isaac and Co.) score (the credit scoring system most widely used by lenders). A credit score is a system of calculating the risk of lending to you based on several factors. It includes: how long you've been at your present job, your occupation, number of years at your present address, the ratio of your balances to your available credit lines, whether you are a home owner, the number of recent inquiries into your credit, your age, the number of credit lines, the years you have had a credit in the credit bureau database, and such derogatory items such as bankruptcy, collections against you, foreclosures and slow pays.) A FICO score of 680 or better can get you better interest rates.

Benefits
A prequalification letter shows you the monthly payment of the principal and interest on the loan you qualify for. In most cases, the lender can also show you the amount you will have to pay towards the mortgage insurance, hazard insurance and property taxes, which will, in most cases, be added to the monthly mortgage payment. Knowing these figures in advance gives you a precise idea of the future costs of home ownership.