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Loan prequalification vs. loan pre-approval
By Texas Association of Realtors
Wednesday, August 15, 2012 • Posted August 16, 2012 2:57 PM

If you’re planning to buy a home, you likely have a long to-do list. But one item that should take priority is obtaining pre-approval or pre-qualification for a mortgage loan. Either scenario puts you in a stronger position as a buyer, but they mean different things.

Are you qualified? To get pre-qualified for a home loan, you must provide a lender approximate income, current debts, and any important details from your credit history. The lender uses these figures to calculate how much money you may be eligible to borrow. You may receive a Conditional Qualification Letter, which determines your likelihood of obtaining a loan. However, all information submitted during pre-qualification is subject to verification at the time your actual loan application is submitted. Because your financial situation has yet to be verified, there is no guarantee of a home loan.

Stamp of approval Typically, pre-approval means that your financial situation has been verified by the lender. When you get pre-approved, you fill out a mortgage loan application and may have to pay an application fee. After an extensive examination of your financial situation, your lender will commit in writing to fund your loan, pending a successful appraisal of the home and a few other conditions. Just because you’re pre-approved for a mortgage loan doesn’t mean you have to borrow the money. However, the lender must stand behind its written loan commitment unless something changes with your situation. Think how attractive you’ll be as a buyer when your offer for a house comes with a letter pre-approving you for the necessary mortgage loan.

Why would the lender change his mind? There are some reasons that could cause a lender to withdraw from providing a loan after a pre-approval letter is issued. If your credit situation changes between your pre-approval and the loan’s funding, the lender could change your interest rate or even deny the loan application. So, while you’re buying a house, abstain from applying for credit cards or other loans.

Dig into your financial history Don’t go into the pre-approval and pre-qualification process without getting a copy of your credit report, which lists your financial history, including total debt and whether you pay bills on time. Checking your credit report regularly is the best way to spot identity theft, credit-report errors or other financial missteps that very well could affect your ability to buy a home. You’re entitled to one free credit report from each of the three credit-reporting bureaus every year. Find out how to obtain your free reports at AnnualCreditReport.com. Be smart, take steps to secure your finances, and get pre-approved for a home loan. Soon you’ll be in the home you’ve always dreamed about.

For your real estate needs, please contact Waymond Lightfoot (RE/MAX Genesis) at 210-386-5201.

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