I Was Pre-Approved. What Does That Mean?
Sometimes the mortgage industry throws around terms without fully explaining what they mean. And on behalf of all mortgage companies everywhere, we apologize. When loan officers speak with clients sometimes they talk as though they’re speaking with a colleague in the business who understands the unique terms lenders use on a regular basis. One of these terms is “pre-approval.” When your lender sends you a pre-approval letter, what, exactly, does it mean? Is it the same thing as pre-qualify?
To a point, pre-approval and pre-qualify are the same but not by very much. With a pre-qualification it means you’ve had an in-depth conversation with a loan officer about how much you might qualify for based upon current market rates. You’ll tell the loan officer how much you make each month, where you work and for how long, talk about your credit history as well as letting you know about how much down payment you will need as well as about how much your closing costs will be. But with a pre-qualification, none of that is verified. It’s the result of a conversation. Your loan officer won’t pull a credit report or request pay stubs but essentially work with what you told the loan officer.
When you’re pre-approved, the loan officer has taken the extra steps needed to verify the important aspects of your loan application. A pre-approval letter is issued to you stating what was verified typically including:
- Credit and Credit Scores
- Sufficient Cash to Close
This verification is supplied by reviewing recent pay check stubs showing gross monthly income or if someone is self-employed the loan office will review your two most recent federal income tax returns. The lender will make sure you’ve been employed for at least two years. Your credit report will be pulled along with credit scores and finally to make sure there are enough available funds to close you’ll provide copies of recent bank statements.
When you make an offer on a home the sellers will ask to see your pre-approval letter. This lets the sellers know that not only are you serious about buying a home but you have already applied for financing and all you need is a property address. That’s what it means when you’re pre-approved.
For more information or questions about mortgage loans,
Please visit Majestic Home Loan
Or Call (855) 757-8748