Most of us now need to get a mortgage when buying a house and are generally familiar with the mortgage process. However, there are mortgage terms that are used and sometimes these terms are used interchangeably by other loan officers. While these terms may sound similar, they are in fact very different and the level of your qualification process is important to understand. The terms we are discussing are Pre-Qualified, Premier Buyer and Final Approval. Understanding these terms is vital to understanding where you stand in the loan approval process.
1. Pre-Qualified: If you are in the market to buy a new home, getting pre-qualified is the first step. This is a fairly simple procedure that can often be done online or over the phone with a mortgage professional. A pre-qualification will give you a ballpark figure on how much you are able to borrow and thus you know what you can afford. During the pre-qualification process, you will be asked basic questions about your income, debt and assets. This is also an opportunity for your mortgage professional to discuss the different loan options that may be available to you. Remember, a pre-qualification is only a snapshot of your borrowing power. Do not make any purchases based solely on a loan pre-qualification.
2. Premier Buyer: Once you are pre-qualified the next step is going through the approval process. This is a much more involved process. Typically, your lender will request several items from you including: a full mortgage application, tax returns, documentation of income and all bank and investment statements. The lender will also pull your credit history as well. Once you become a premier buyer, you will know the exact loan amount you are approved for as well as which interest rate you qualify for. The main advantage of being a premier buyer is that you are now in a position to make legitimate offers on properties you are interested in. A premier buyer is much more desirable since they are able to close quicker than those who are not premier buyers.
3. Final Approval: Final approval is the last step in the loan process and is often referred to as the Loan Commitment. This is both the final step and the most important one. During the final approval review, the lender will ensure a clean title and that there has been no change in the borrower’s financial or credit status since pre-approval. The final approval is also contingent upon a satisfactory appraisal of the property and establishing that there are no liens or legal actions being brought upon the property as well. The final approval is only issued when the lender is absolutely certain that it will adjudicate the loan. Therefore, it is important that the commitment date and the closing date are fairly close to each other.
An educated buyer will always have the advantage, so understanding the mortgage approval process will put you head and shoulders above the competition.