ARE YOU PRE-APPROVED?

Before you begin to shop for a new home, you should set up a time to meet with one of BEST BEACH LENDING mortgage consultants so they can figure out how much of a mortgage 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 to you as a buyer and to the seller as you decide to make an offer on your new home.

Pre-Qualification:

This is a means of determining the maximum mortgage amount you may qualify for. Pre-qualification is based on information you give your loan originator. This information will include current income, current debt, etc. In addition, your Mortgage Consultant will “pull a credit report” for you to give them a more concrete idea of your credit history. It is important to note that, with the exception of the credit report, there is no documentation required for a pre-qualification. Because of that, the actual mortgage amount you qualify for may vary significantly from what your pre-qualification states.

Pre-Approval:

This is a much more involved process. Basically, all the information that would be taken for a pre-qualification is now taken with documentation backup. Things such as paycheck stubs, tax returns, bank statements and employment verifications are used to obtain an actual monetary commitment letter from a lender. The commitment letter is a written statement from the lender that you, the buyer, have been pre-approved and that the lender plans to offer you a mortgage up to a specific amount. Although it is not necessary to have a property picked out at this point, you need to keep in mind that the letter the lending institution issues does have an expiration date. In addition, any property you choose must meet the guidelines set forth by the lender (such as passing termite inspections and submittal of appraisal among others). Should your pre-approval letter expire before you select a home, additional verification and documentation might be needed to issue a new letter.

It is important to note that 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. If your financial situation changes (e.g. you lose your job), interest rates rise or a specified expiration date passes, your mortgage consultant will review your situation and recalculate your mortgage amount accordingly.