Are you just pre-qualified or fully pre-approved for a loan?

St Paul, MN: Smart home buyers in Minneapolis, St Paul, Madison, Milwaukee, and throughout all of Minnesota and Wisconsin should know that before you begin to shop for a new home, you should set up a time to meet with a lender so they can figure out if you qualify for financing, and if so, how much house can you afford.

Sounds simple enough, but unfortunately, may people only get "pre-qualified" and THINK they are "pre-approved". Understanding the difference between the two terms will be crucial when you decide to make an offer on a house.

To get pre-qualified for a loan, lenders will ask you information about your debts, income, assets, and credit. We may look at your credit profile, talk about goals for a down payment and get an idea of different loan programs that would work for you. If everything looks good, you are off to a good start. It is important to understand that pre-qualification is just an estimate of what you are eligible to borrow, not a commitment to lend.

To get pre-approved, you move to the next step. This is where you sign a full mortgage application and actually provide lenders with verification copies of your information (assets, pay stubs, W-2 forms, and more).

Lenders will review these documents against your application, and submit the file to underwriting. Once the application process is complete you will receive a pre-approval letter indicating the amount your lender is willing to lend you for your home.

Getting fully pre-approved for a loan gives you a competitive advantage when the time comes to bid on a home because you have been approved for a loan for a specified amount.

Only an actual Underwriter can pre-approve you, so be very cautious of any lender who says you are pre-approved when you have never submitted any documents, or they have never put your application in front of their underwriter!

Finally, even a pre-approval letter is not binding on the lender; it is subject to an appraisal of the home you wish to purchase and certain other conditions.

If your financial situation changes (e.g. you lose your job), interest rates rise or a specified expiration date passes, your lender must review your situation and recalculate your mortgage amount accordingly.

But, a real pre-approval letter it is about as close as you can get to knowing your final financing is going to approved, and is a huge leap above a simple pre-qualification!