Getting pre-approved for a home loan is an important step before the buyer makes an offer to purchase a home. A loan officer verifies an individual’s income, assets and credit to determine if he meets certain qualifications to obtain a mortgage loan. Once approved for a loan, the buyer receives a pre-approval letter. Prospective mortgage borrowers also have the option of shopping around to find the best loan terms.
A pre-approval letter signifies that the borrower has been granted approval for a mortgage loan for a specific amount. Different lenders might offer several types of loans with different principal amounts and interest rates. At this point, the borrower is aware of how much he can afford to spend to purchase a home and how much he can pay each month toward the balance of the loan. The letter also provides verification to the seller that the buyer has the resources available to purchase the home. The pre-approval letter helps facilitate the closing process of purchasing a home since it assures the seller and the agents of the buyer’s capability of providing the necessary funds.
Banks and Credit Unions
Most commercial banks and credit unions are lending institutions. Loan officers secure mortgage loans on behalf of the financial institutions they work for. Most banks and credit unions initiate and supply funds for their own mortgage loans. They receive the funds to cover mortgage loans from customers, who maintain savings accounts, checking accounts, certificate of deposit accounts and other investment accounts. Financial institutions also establish the terms of the loans for their mortgage loan programs.
Mortgage brokers work on behalf of several lenders to help borrowers obtain approval with at least one of the lenders. Mortgage brokers receive a fee to act as an intermediary between lenders and borrowers. They market their services to potential customers and facilitate the mortgage loan pre-approval process. Rather than visiting several lenders, some borrowers obtain the services of mortgage brokers to help match them to the best lenders.
Savings and Loan Associations
Savings and loan associations specialize in offering savings accounts, certificate of deposits and mortgage loans to customers. The account holders are members of the associations, and they have voting rights to influence various managerial goals of the organizations. Savings and loan associations fund their mortgage loans from the various deposits from members.
Marie Huntington has been a legal and business writer since 2002 with articles appearing on various websites. She also provides travel-related content online and holds a Juris Doctor from Thomas Cooley Law School.