The words look and sound the same, but being pre-qualified and pre-approved for a home loan are different things. Let us take a look at their differences and how they compare to a full loan approval.
The process of getting pre-qualified for a home loan is quite easy. You can do so in person at a local bank or mortgage lender or better yet, on the phone or via the internet. The service is usually free of charge. The lender will ask you for very basic personal and financial information. Be prepared to provide your:
- address and how long you have lived there
- total income
- total debts
- current assets
- overview of your credit standing
The lender will use this information to estimate what you will likely be able to borrow. This is an “educated guess” and is simply used to ballpark the price range for your new home.
While this information is very important to you in terms of budgeting for your home, it may or may not impress the seller if you are hoping to use it as bargaining tool. The sellers are aware that the mortgage lender is not committed to providing you a home loan as a result of running these numbers for you. The seller will want more.
Additionally, because the lender did not verify your accounts or debts and in most cases did not pull your credit report, the pre-qualification letter will be chock full of disclaimers. The pre-qualification statement will be subject to:
- a formal mortgage application
- verification of employment
- verification of assets
- overview of debts
- credit rating and score
- additional underwriting guidelines
A mortgage pre-approval takes the pre-qualification process a few steps further. A pre-approval will impress a seller and will give you even more confidence regarding your home buying budget. And as a bonus, getting financing out of the way will let you focus on picking the right home in the right neighborhood (the fun part of home buying).
A pre-approval requires a formal application process. Be prepared to provide:
- pay stubs for last 30 days
- two years tax returns and W-2’s or business tax returns
- proof of other income
- proof of other assets (stocks, pension funds)
- three months of bank records for all accounts
- source of your down payment
- contact information for employers for the last 2 years
- contact information for landlords for the last 2 years
- current debt information: account numbers, payment amounts, balances, etc.
Upon approval you will receive a formal pre-approval letter. This will be a written commitment from your lender which your sellers will be thrilled to see. Be aware however, it is not free of conditions, yet.
When the lender pre-approved you, it was only for the amount of money which you can afford for the purchase of your home. Remember, you have not yet found that home. When you do, the lender will insist on an appraisal of the property so they can be sure they are not lending you more money than the house is worth.
Additionally, if there is a significant amount of time between your pre-approval and when you find your home, the lender will want to make sure there are no changes in your employment status, financial situation, or credit worthiness. When you are ready to close on the loan, the lender will re-verify your information.
Your mortgage loan will be fully approved when the appraisal is complete, the title search is done, your information is re-verified and a credit-check is re-run.
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Better Loan Decisions Through a Mortgage Calculator
A mortgage calculator is a program used to help home buyers establish their monthly payment on their mortgage using variables such as principal, interest rate, and term. Mortgage calculators are, thus, essential tools for home buyers. Here are their different uses and their various types.
During the early process of applying for a mortgage, you will find that a mortgage calculator is a very valuable tool you can use to:
- Determine the amount of mortgage and the price of a house you can afford based on your income and debt information
- Calculate your monthly mortgage payments based on loan amount, interest rates and other loan terms
- Compare the costs or real interest rates between several different mortgage loans
- Compute extra payments on your monthly mortgage that enable you to pay off your mortgage faster
- Calculate your payments on debt consolidation mortgage loans to get an idea of your monthly savings
- Check how you can refinance the loans you have by working out the amount you can afford to borrow and exactly how much your repayments are going to be using time scales and interest rates
- Make comparisons with other mortgage products, both fixed and adjustable
- Make amortization schedules and tables using the amount and interest as basis
- Calculate when it is sensible to refinance your home
Therefore, by using a mortgage calculator, you can most certainly get good and precise information about the actual mortgage loan. All you have to do is to enter the required figures in the mortgage calculator provided in most lender web sites. Make sure you’re getting a lot of options by using another company’s mortgage calculator. By doing so, you will find out that there are different choices for a loan in other companies. To find the best one, you have to make a number of searches and several calculations using the appropriate mortgage calculator.
There are different types of mortgage calculator. Here are some of them:
Adjustable Rate Mortgage Calculator
- Determines the monthly mortgage payments on an adjustable rate mortgage (ARM)
- Evaluates the maximum mortgage payment you can expect if your ARM rate has reached its highest point
- Calculates the total amount of interest you will be paying over the term of the loan, together with your total payment and amount
ARM vs. Fixed Rate Mortgage Calculator
- Compares the monthly mortgage payments for each kind of loan
- Evaluates fixed rate mortgage payments to both fully amortizing ARMs and interest-only ARMs
Interest Only Mortgage Calculator
- Determines the amortization schedule for an interest-only mortgage
- Assesses how principal payments made to lessen the mortgage loan balance will influence the amortization schedule
Maximum Mortgage Calculator
- Allows you to key in your monthly income and monthly obligations so you can calculate the maximum monthly mortgage payment and mortgage amount you can afford
- Helps you determine the way interest rates can affect the mortgage amount you can afford
With the proper use of a mortgage calculator, you are assured of making sound mortgage loan computations. These calculations, in turn, are valuable in helping you come up with better mortgage loan decisions.
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Refinance Mortgage Loan – Tips on Refinancing Your Home Mortgage
Refinancing your home mortgage can come with some great perks. If you do it with no money out of pocket, you can skip one to three mortgage payments. You can save money on your payment or pay off your entire mortgage faster when you have better terms. Here are a few things to pay attention to when you refinance your mortgage loan, to make sure that you don’t overlook anything that you might regret, or that can cause you problems later:
1. Apply for a pre-approval to many different lenders to make sure you are getting the lowest rate possible. When you do this, make sure that with the initial pre-approval application, the lender is not pulling your credit history. You will want to reserve your credit pull for the lender that you are most likely to work with. You can decide that after you have gone through the preliminary pre-approval process with a few lenders. Each time your credit is pulled, it docks your credit score just a little. If you have too many inquiries, it could keep you from refinancing your mortgage loan with the lowest rate possible. When you pre-apply for home mortgage loans online, most lenders or mortgage service companies will not initially pull your credit. Check for information about this on their website. They will usually tell you whether or not they are going to pull your credit. Also, if on the application you do not give them your social security number, they cannot pull your credit. If, on the application, they ask you to describe your credit, they are probably not pulling your credit.
2. Make sure that your original mortgage does not have a pre-payment penalty or early payoff penalty of any kind. Sometimes people will get into their mortgage with the mortgage having a pre-payment penalty and they will not even know about it. Pre-payment penalties usually range from 6 months to 3 years with a penalty for an early payoff. The penalty is usually about the amount of 6 months worth of your mortgage loan interest, but this varies. You would have to be able to have some significant payment and interest savings on your refinance loan to justify refinancing a mortgage loan with a pre-payment penalty.
3. When evaluating different lender offers, in the mortgage loan pre-approval process, pay closest attention to the interest rates they are offering & the closing costs. These are the two biggest factors that will help you figure out which lender is right for you. If one of these two factors is too high, it could offset the benefit of refinancing for you.
4. Get your interest rate and closing costs in writing as soon as you decide on a lender to work with. Get your lender to give you a commitment in advance of all of the costs that will be involved with your loan. Find out if the refinance loan you are getting has a pre-payment penalty as well. Sometimes lenders will leave out important information like this, if they think it might scare you away from refinancing with them.
To view a list of highly recommended refinance mortgage lenders, most of which will not pull your credit in the initial application, visit this page:Recommended Refinance Mortgage Lenders.
Carrie Reeder is the owner of http://www.abcloanguide.com. ABC Loan Guide is an informational loan website with informative articles, the latest finance news and lists of recommended mortgage lenders.