AZ Real Estate

Shopping for a mortgage became easier in early October when the Consumer Financial Protection Bureau began mandating that lenders provide a new, simplified disclosure form to help consumers compare home loans. This disclosure (see below) is most useful after youve found the home you want and need a solid estimate of borrowing costs from a variety of lenders. But before you get to that stage, youll need to prove to a seller that a bank will lend you what you need to close on the deal. To avoid miscommunication snarls, you have to understand the difference among lender guarantees.

The Prequalification

A prequalification is really just to get you started, so you have a ballpark idea of how big a mortgage you can afford. When a bank prequalifies you, its giving you a preliminary statement of how much you could borrow, based on income and asset information youve provided. It is not based on any hard evidence, because at this point, you havent given your bank statements or had bank officers request your credit report. (For more information about the prequalification process, watch this Chase Bank video.)

The Preapproval

When the bank tells you youre prequalified, it may ask for your employers name and your Social Security number to verify your income and creditworthiness, as indicated by your credit reports. Thats to start the mortgage preapproval process.

A bank will issue a mortgage preapproval once it has all your documents in hand. These could include income verification from employers, recent tax returns, bank and brokerage statements, and credit reports. The bank will then have a specialist call an underwriter to determine how much youre capable of paying and how big a mortgage loan you can afford. That assessment will result in a preapproval letter from the lender that you can present when you bid for a home.

Having a preapproval in hand gives you a jump on other potential buyers. It lets the seller know youre a good candidate, and that the bank is likely to award you a loan. Itll also make you feel more prepared to buy.   

However, complicating matters, banks dont always define the terms in the same way, according to the Consumer Financial Protection Bureau. EverBank, the online lender, for instance, doesnt use the word, prequalification. Instead, it uses the term preapproval for what other banks define as prequalification. And what most banks call a preapproval Everbank terms a credit only approval, which means it has verified your income and creditworthiness. 

Keep in mind that youre not required to borrow from the bank that issues your prequalification or preapproval.

*GOD Speed*

from The Cascade Team Real Estate Blog


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