7 Things to Take Note of When Getting Pre-Approved

By Daniel Duffield

Before beginning the home purchase process, it is recommended that borrowers get pre-approval for a mortgage. In addition to the peace of mind that comes with knowing that the financing aspect is taken care of, pre-approval letters additionally help to avoid any delays within the mortgage application process and ensure that the transaction proceeds smoothly.

When getting pre-approved for a home loan, borrowers should consider the following items on the pre-approval letter and take these factors into consideration when shopping for a suitable home:

1.       Loan Amount

The most important consideration when looking over a pre-approval letter is the specified loan amount. Often, borrowers seek pre-approval solely to get a decently reliable estimate of how much they can afford on a home mortgage. Pre-approval takes into consideration a range of borrower qualifications, including debt-to-income ratio (DTI), loan-to-value ratio (LTV), and credit history. Taking into account this information, a pre-approval letter includes estimates for the loan amount, down payment required, and monthly mortgage payments.

2.       Status Date and Expiration Date – Pre-approval letters do not extend their guarantee indefinitely; in general, pre-approval letters will remain open for a period of 90 days from when the borrower’s credit was initially pulled.

3.       Mortgage Type – Depending on your circumstances, you may qualify for several different types of loans, including the standard conventional loan, a government-guaranteed FHA loan, or a military-exclusive VA loan. Your pre-approval letter will indicate which type of loan you qualify for.

4.       Loan Term – Mortgage loans can range in terms of their lifespan between 15 years up to even 40 year terms for fixed-rate mortgages (FRM). For adjustable-rate mortgages (ARM), the pre-approval will specify for how long the interest remain fixed, varying between 3, 5, 7, or 10 year fixed periods.

5.       Occupancy Status – This item is fairly straightforward; borrowers applying for a home purchase loan for a primary residence will see occupancy status listed as “owner occupied,” whereas other types of purchases may indicate “secondary residence” or “investment,” depending on the circumstances.

6.       Contact Information – Contact information refers to the avenues through which the borrower can contact the lender, and this often includes the lender’s name and address.

7.       Conditions – Some pre-approval letters include conditions that must be met prior to the lender’s granting of approval, such as the request for additional documentation.

Borrowers should note that, while pre-approval letters are a preliminary sign of mortgage approval, not all pre-approved borrowers will qualify during the home purchase loan application. Ultimate approval may be contingent upon the condition of the home, the appraisal value, title considerations, and other conditions.

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