Are you pre-qualified or pre-approved for a home loan?
Before you begin to shop for a new home and mortgage, set up a time to meet with a loan officer so you know how much you can afford. This will put you in a better position as a home buyer. It is important to understand the distinction between being pre-qualified or pre-approved for a home 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, your loan officer will collect information about your debt, income, and assets. He or she will look at your credit profile and work with you to assess goals for a down payment and get an idea of different loan programs that would work for you. The loan officer will issue you a pre-qualification letter indicating the amount you are pre-qualified to borrow.
It is important to understand that a pre-qualification letter is an estimate of what you are eligible to borrow, not a commitment to lend.
Getting pre-approved for a loan gives you a 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 complete a mortgage application and provide your loan officer with various information verifying your employment, assets and financial status such as W-2 forms, bank records and credit card statements. You and your loan officer will review your mortgage options and submit your application. Once the application process is complete you will receive a pre-approval letter.
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 lender must review your situation and recalculate your mortgage amount accordingly.