The Difference between Pre-Qualification and Pre-Loan Application Approval

Before you buy the new fully-loaded Land Rover, you may consider deferring your new purchase, if you are planning on buying a new home in the future. Not to mention, it makes the best money sense to have extra cash on hand for a down payment. A new vehicle purchase to some lenders may lead to a rejection or challenge in obtaining a loan approval.

When loan underwriters approve loans, total debt obligations exceeding thirty-six percent of a mortgage consumer’s income maybe deemed as a potential financial risk. As a result piling on consumer debt should be avoided during the loan application approval process.

The beachfront property in Naples may be beyond certain consumer’s means. Another common mistake homebuyers make is shooting their home sites too high. In the mortgage industry, lenders refer to such home loans ‘payment shock.’ It is particularly true in situations where the home loan shopper goes from meager monthly rent to a mammoth monthly housing payment. Lenders prefer to approve loans where they deem a borrower to be comfortable enough to transition the new debt load.

While being pre-qualified is a plausible maneuver obtaining a pre-approve loan makes the best financing sense. To obtain a pre-qualification, a borrower need to submit credit status, verify income and provide debt information only. In other words, a pre-loan application is only an estimate of the maximum mortgage. Moreover, it delineates how much a shopper can afford to spend on a home. Prior to shopping for a home, shoppers should obtain a loan application pre-approval. Dissimilar to the pre-qualification, the pre-approval process will entail the evaluation of credit reports, calculations of debt-to-income ratios and administration of any necessary underwriting steps. All in all, it simplifies the loan application approval process for the borrower and locks in rate and term.