Know the difference between a pre-qualification and a pre-approval:
A mortgage pre-approval is a thorough review of your income, debt, assets, and credit history. It is a rigorous process to determine how much money you can borrow. It is not a guarantee of a loan but is more valuable than a pre-qualification.
A pre-qualification is a situation where the borrower reports their income, debt, and assets to the lender and based on that information tells you that you may qualify for this much of a mortgage.
As a borrower, what matters to you is that you have a letter that reflects your financial ability to purchase a home. At Mortgage Equity Partners, we recommend that you review your letter to make sure it includes the following:
- Purchase Price
- Loan amount which will give you the Loan to Value
- Expiration date
- All borrowers’ names and addresses
- Loan Type
- Loan Term
- Are there seller’s credits?
- Is there a contingency to sell the current home?
- Other contingencies
- Contact details for the loan officer with valid NMLS identifier
- Name and contact details of the mortgage company
A true pre-approval is a thorough review of assets and income documentation. You will have your credit report pulled and reviewed as well as your income and assets reviewed. This letter will give a true representation of your ability to borrow and give you a specific loan amount. In a competitive market, having a pre-approval rather than a pre-qualification can make the difference for you in getting your offer accepted.
Whether it is a pre-approval or a pre-qualification, what really matters is that you can trust the loan officer to do a detailed job so there are no surprises down the road.