The Difference Between Pre-Qualification and Pre-Approval

Ben Russ, Vice President of Hilton Head Mortgage sent me the following pertinent information regarding financing for a home on Hilton Head Island.

Pre-qualification is the first step in obtaining mortgage financing.

A potential borrower answers a few questions to provide the loan consultant with a quick snapshot of the borrower's income, existing debt, accumulated savings and whether or not there is a co-borrower. Signatures allow the loan consultant to run a credit report and begin to determine what loans are good candidates for this particular client. However, there are literally thousands of loan programs available.

It is important for the loan professional to know the long-term financial objectives of the prospective homeowner.

Pre-approval is a written documentation that proves the borrower has full support of a lender.

It means the form 1003 Uniform Residential Loan Application has been completed and reviewed by an underwriter. Based on the borrower's income, debt ratio and savings, the underwriter will provide a dollar amount this borrower is eligible for.

Now the borrower has the convenience of shopping for a home in the price range agreed upon by the lender.

Pre-approval allows potential homeowners to shop as cash buyers, and that means negotiating power. The seller will take an offer from a pre-approved shopper much more seriously and may even accept a lower bid because they know the financing is in place and the deal is secure.

For more information regarding the home-buying lending process on Hilton Head Island, South Carolina, or for real estate information, email me with your questions at HiltonHeadJR@aol.com.

Understanding Mortgage Lending

Many homebuyers seeking a mortgage are perplexed about the current state of available mortgage products. This is not surprising when considering all that has been in the media over the last several months.

At the heart of the issue are subprime borrowers and how they have affected global financial markets. Subprime Mortgages are a type of loan that is offered to individuals who do not qualify for prime rate loans. Quite often, subprime borrowers are often turned away from traditional lenders because of their low credit ratings or other factors which suggest that they have a reasonable chance of defaulting on the debt repayment. Over the past year many of these borrowers have defaulted on their mortgages which, in turn, affected financial markets worldwide.

Most U.S. mortgages are tied to global investment markets on Wall Street, where investment banks bundle them up and convert them into securities. These mortgage backed securities (MBS) are, in turn, sold to private and government institutions both in the U.S. and abroad. With the rise in mortgage defaults, a wave of financial loss has spread worldwide. This “crisis” has caused many mortgage lenders to go out of business including some nationally recognized companies that were deeply involved in subprime lending.

The good news now is that it is one of the best times in the last 40 years to secure a mortgage with interest rates at near historic lows. Homebuyers who can qualify for a conventional mortgage have a vast array of products from which to choose. Those who already have a mortgage will also find that now is a great time to refinance into a long term low interest mortgage.

Homebuyers should join with their REALTOR® and meet with a mortgage professional to obtain a pre-qualification for their mortgage. This will expedite the buying process and strengthen the buyer’s negotiating position. The procedure is simple and takes just a few minutes to complete. Decisions made by a quality lender are often provided in a matter of minutes. A reputable lender should also provide a “pre-qualification letter” to use for the home buying process.

Now is a great time for homebuyers to secure a mortgage.

Tony Knapp is a loan officer at Mortgage Network, Hilton Head Island’s largest and most respected mortgage lender. He is also a member of the John Robinson Team. For more information, Tony can be reached at 843-341-0111 or tknapp@mortgagenetwork.com.