The prospect of purchasing a home is so exciting that many buyers begin looking for one before they understand how the mortgage loan process works. However, rushing ahead can backfire. Not only is your ability to buy in question until you have proof that you qualify for a loan; you also won’t know how much you can spend until you know how much financing you qualify for. A pre-approval gives you this information. Your actual mortgage loan approval comes later.
A mortgage pre-approval is based on your credit report. The mortgage representative looks at your credit score and your credit history to see if there are problems that might keep your loan from being approved, such as a low score or recent late payments. If you meet the lender's guidelines, the representative issues a mortgage loan pre-approval. The pre-approval is a letter that states the type of loan you qualify for and how much you can borrow. You’ll submit this letter with your purchase offer as proof of your ability to pay for the home.
You'll apply for your mortgage loan shortly after the seller accepts your purchase offer. The lender's evaluation of your application documents is much more thorough than the credit evaluation that led to your pre-approval. At the conditional approval stage, the lender goes through your finances with a fine-tooth comb to verify your income, employment, assets, debt and the home's suitability for financing. Once the lender has enough information to approve your loan, it typically issues a conditional approval. This approval lists one or more conditions you must meet before the lender will issue a loan commitment. The conditions might include home inspection reports or additional financial documents.
The lender issues your loan commitment after you've complied with all the conditions. The commitment represents the lender's firm offer to finance your home purchase. Shortly after you receive the commitment, the lender will declare your loan "clear to close." This means that insofar as the lender is concerned, your loan – and your sale – is ready to close escrow.
Keeping Things Moving
The best way to get from pre-approval to closing is to follow your mortgage representative’s instructions to the letter. The faster you submit necessary documentation, the more time you give yourself to work through any glitches that arise. Because financing issues are the cause of many closing delays, your cooperation is one of the most important factors in meeting your deadline.
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