You’ve finally decided to take the plunge into homeownership, but finding out where to begin can be difficult. Here at Mortgage Specialists, we advise that you seek out a lender before beginning to house hunt.
Not only will speaking with a lender first give you insight into the process, but it will allow you to find out how much house you can afford. Speaking of managing your expectations, if you’ve done any research on purchasing a home, you’ve probably come across a few terms that sound similar: pre-qualification, pre-approval, and loan commitment.
You may have been left wondering what the differences between the three are since they all seem to indicate the amount you would be able to borrow. Don’t worry, you’ll know the difference between a pre-qualification, pre-approval, and loan commitment in no time.
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A pre-qualification occurs when a buyer provides a lender with an overall picture of their finances without providing any paperwork. There is no credit report pulled for a pre-qualification, nor is there any verification of the information provided. The lender essentially takes the buyer at their word and analyzes the amount they may qualify for based on that information.
When it comes to looking like a serious buyer, obtaining a pre-qualification is better than nothing at all, but not preferred. If there are multiple offers on a house with pre-approved buyers, your offer may not be considered.
A pre-approval is the golden standard for homebuyers. Similar to pre-qualifications, the buyer will provide the lender with a picture of their financial situation. With a pre-approval, however, the buyer also supplies the lender with documentation – W2s, paystubs, tax returns, bank statements, etc.
Then, the lender analyzes the buyer’s documentation, pulls their credit report, and determines if they’re eligible for a loan. If they are, the lender issues a pre-approval for a certain amount.
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A loan commitment takes the pre-approval a step further. After the lender has compiled everything needed from the pre-approval stage, they take the time to verify the documents provided. After being verified, they issue a loan commitment for the amount they’re willing to let the buyer borrow.
The loan commitment is complete with the amount of the loan, interest rate, type of loan, and period of time. A loan commitment ensures the buyer that the lender will lend them that amount of money when the time comes.
We hope this post has helped clear up any confusion you may have had regarding pre-qualification, pre-approval, and loan commitment. If you have any additional questions, please don’t hesitate to give us a call at (402) 991-5153.
Ready to get pre-approved? Our online application takes anywhere from 5-20 minutes to complete. Once submitted, we can have you pre-approved for a loan in just a few hours.