What does it mean to be pre-qualified for a home loan?

Pre-qualified for a loan gives you an idea of how much you might qualify for. You have not applied for a loan. The mortgage officer has only your word on your income, assets and liabilities. None of the information has been verified yet. The loan amount is not guaranteed. A pre-qualification letter merely states you are likely to be approved for a mortgage. This is why we only do pre-approvals.

What does it mean to be pre-approved for a home loan?

Pre-approved for a loan means that not only have you provided information on your income, liabilities, and assets, but that the information has been verified. Also, your credit report may be pulled to learn about your credit history and credit-worthiness.

A pre-approval letter carries more weight than does a pre-qualification letter. It means that you are more likely to be approved for a mortgage. It also states the amount for which you may be approved for. It is your best leverage when making an offer on a home.

Being “pre-approved” means you have a mortgage commitment from your lender, making you a strong buyer. When you find your perfect home, your offer will be more seriously considered if you have a full loan commitment from a strong lender behind you.

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No Guarantee

Getting pre-qualified or pre-approved status does not necessarily guarantee that your loan will actually go through. Complete, accurate, and verified information is important for both the borrower and the lender to have a successful outcome.

Remember that it is very important to inform the Loan Officer of any changes in the financial information that was provided at the time of approval, as it may make a change in the amount or type of loan that you can qualify for.

In conclusion:

• Save time with a loan pre-approval…no wasted time viewing homes you may not be able to purchase.
• Your real estate professional will be able to work faster, showing you homes that will suit your needs and budget.
• When you find the right home, you can make a strong, confident offer.
• Sellers will take you seriously knowing you’re an approved buyer.
• Your offer will be more credible than the competition because you’re prepared to purchase.

When you apply for a mortgage loan lenders want to know the risk. FICO® scores are the credit scores most lenders use to determine your credit risk. Credit bureau scores are often called “FICO® scores” because most credit bureau scores used in the U.S. are produced from software developed in 1956 by Fair Isaac and Company. FICO® scores are provided to lenders by the major credit reporting agencies.

You have three FICO® scores, one for each of the three credit bureaus: Experian, TransUnion, and Equifax. Each score is based on information the credit bureau keeps on file about you. As this information changes, your credit scores change as well. Your 3 FICO® scores affect both the amount of a loan and what loan terms (interest rate, etc.) lenders will offer you.

A FICO score is a three digit number ranging from 300-850 and is calculated according to risk factors. These factors are represented in percentages and are based on the importance of the five categories for the general population (and subject to change).

Amounts Owed (30% of  score):  What is owed on all accounts, on different types of accounts, whether you show a balance on certain types, how much of the total credit line is used, and the amount on installment loans that are still owed.

Your Payment History (35% of score): Payment information, public records and collections, late or missed payment details: how late, how much owed, how recent, and how many.

Length of Credit History (15% of score):  How long your credit accounts have been established, in general, and how long it has been since you used certain accounts.

New Credit & Inquiries (10% of score): Types credit accounts you have, how many of each and the total number of accounts you have.

Types of credit (10% of score): Number of new accounts you have, how long it has been since you opened a new account and the number of recent requests for credit you have made.

What Your Credit Score Means

Once your score is determined, most lenders use a standard “grading” system to categorize the final results. Below is a general guide of scoring. Not all lenders use this, but as a general reference this can help you interpret the credit score you’ve been given.

Note: The above information may change at any time.

A rate lock is a lender’s promise to keep a specific interest rate on hold for you and a specific number of points for a period of time while your loan application is being processed. This prevents you from going through the trouble of the whole application process and at the end; finding out the interest rate has gone up.

A rate lock period can vary in its length.  Longer rate lock periods can cost more. A lender will agree to “hold” your interest rate and points for a longer period, for instance 45 days, but in exchange the rate and possibly the points too are higher than the interest rate with a shorter rate lock period.

There are many ways besides selecting a shorter rate lock period, to get a lower rate. A larger down payment will result in a lower interest rate because you’re starting out with more equity. Or, you can pay more points to lower your rate over the life of the loan, which means you pay more up front. For most people, this makes good sense and is a good bargain.

Closing costs are fees paid by the lender, which the lender in turn charges you, the borrower, to close the loan. For the most part, people pay closing costs when they sign on the dotted line.  However, you can  finance closing costs. Paying closing costs when the loan actually closes will reduce your interest rate.

Finally, the interest rate a lender is willing to offer you depends on your credit score and your debt-to-income ratio. If your credit is good and your income exceeds your debt by a good amount, you will qualify for a lower rate.