The Difference between Pre-Qualification and Pre-Loan
Before you buy the new fully-loaded Land Rover, you
may consider deferring your new purchase, if you are
planning on buying a new home in the future. Not to
mention, it makes the best money sense to have extra
cash on hand for a down payment. A new vehicle purchase
to some lenders may lead to a rejection or challenge
in obtaining a loan approval.
When loan underwriters approve loans, total debt obligations
exceeding thirty-six percent of a mortgage consumer’s
income maybe deemed as a potential financial risk. As
a result piling on consumer debt should be avoided during
the loan application approval process.
The beachfront property in Naples may be beyond certain
consumer’s means. Another common mistake homebuyers
make is shooting their home sites too high. In the mortgage
industry, lenders refer to such home loans ‘payment
shock.’ It is particularly true in situations
where the home loan shopper goes from meager monthly
rent to a mammoth monthly housing payment. Lenders prefer
to approve loans where they deem a borrower to be comfortable
enough to transition the new debt load.
While being pre-qualified is a plausible maneuver obtaining
a pre-approve loan makes the best financing sense. To
obtain a pre-qualification, a borrower need to submit
credit status, verify income and provide debt information
only. In other words, a pre-loan application is only
an estimate of the maximum mortgage. Moreover, it delineates
how much a shopper can afford to spend on a home. Prior
to shopping for a home, shoppers should obtain a loan
application pre-approval. Dissimilar to the pre-qualification,
the pre-approval process will entail the evaluation
of credit reports, calculations of debt-to-income ratios
and administration of any necessary underwriting steps.
All in all, it simplifies the loan application approval
process for the borrower and locks in rate and term.