Are you pre-qualified or pre-approved for a loan?
Before you begin to shop for a new home, we should set up a time to meet so we can figure out how much you can afford. This will put you in a better position as a buyer.
That’s when it is important to understand the distinction between being pre-qualified for a loan and pre-approved for a loan. The difference between the two terms will be crucial when you decide to make an offer on a house.
To get PRE-QUALIFIED for a loan, you will need to complete a loan application and I am required to pull a tri-merge mortgage credit report for the 3 credit bureaus. I’ll also collect information about your debt, income, and assets. We’ll look at your credit report and assess goals for a down payment and get an idea of different loan programs that would work for you. If you like, I can give you a pre-qualification letter but usually a simple call to your realtor is sufficient. When you really need a “Pre-Qual letter” is when you put an offer on a house. Cost for Credit report is $20 for individual, $26.50 for joint credit report.
It is important to understand that a pre-qualification letter is just an estimate of what you are eligible to borrow, not a commitment to lend. Getting PRE-APPROVED for a loan is different and gives you competitive advantage when the time comes to bid on a home because you have been “approved” for a loan for a specified amount.
To get PRE-APPROVED, you will also complete a mortgage application and we’ll pull credit however, you will also need to provide me with various information (What’s needed) verifying your employment, pay stubs, assets and financial status such as W-2 forms, bank records and investment statements. At this time we will process your file through “Automated Underwriting” programs from Fannie Mae and/or Freddie Mac for an Automated Approval”. Basically this is saying that if the information you provided can be verified and there are no other items requested, then you qualify for the loan.
A PRE-APPROVAL letter is not binding on the lender; it is subject to an appraisal of the home you wish to purchase and certain other conditions. In truth it would be better if it was called a “Conditional Approval” and those inside our industry actually do. If your financial situation changes (e.g. you lose your job), interest rates rise or a specified expiration date passes, your lender must review your situation and recalculate your mortgage amount accordingly.
After the conditions are met you will receive a “CLEAR-TO-CLOSE” which means the approval process is to a close and your underwriter has approved all of the conditions for the loan. Once we have the clear-to-close your file is submitted to the closing department and within a few days we be closing on your loan.
