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Loan Pre-Qualification and Pre-Approval | Home Loans 101

This series has been designed with our homebuyers in mind. Regardless if you are a first-time or veteran buyer, the first step of the home buying process often involves shopping for a loan. This process is not always as simple as it sounds! Which types of loans are there? What is the difference between them? Which loan is best for you? Through this new series, we will help you navigate through those questions and the loan process, breaking down the most common loans that we deal with here at Nashville On The Move.

Week 1: Loan Pre-Qualification and Pre-Approval

This week we want to inform our homebuyers on loan pre-qualification and pre-approval.

Pre-Qualification is a non-binding estimate of your ability to borrow based on informal questions regarding your income, job stability, credit history, and current monthly expenditures. There are lenders who can offer these informal preliminary estimates. There are no fees involved to be pre-qualified. Your estimate will not be guaranteed and you are not obligated to choose the services of the lender who pre-qualifies you.

Pre-Qualification allows the agent to tell prospective sellers that your chances of loan approval are good when a formal application is made. This will be to your advantage when you enter into negotiations for the home, as the Seller can be reasonably assured you will qualify. Lenders are very accommodating and will answer any questions you may have. Remember, however, that your loan is not guaranteed. Your pre-qualification is based on the accuracy of the information you provide to the lender.

Pre-Approval means that you have a tentative commitment from a specific lender for mortgage funding. In this case, you provide a home loan lender with actual documentation of your income, assets, and debts. This process typically requires an application fee as well, since the bank will run a credit check and work to verify all your employment and financial information. Once you are approved, the lender will give you a letter of commitment, stating how much money their bank is willing to loan you for a home purchase.

It is important to understand, however, that even a pre-approval is not a guarantee that you will be approved for a mortgage loan. The funding will only be given when the property appraisal, title search, and other verifications check out on the home you have chosen to buy. Neither is the pre-approval binding; you can still obtain a mortgage from a different lender. If you do stick with the same company that pre-approved you though, the application process will be much shorter once you find the right house.

Thanks for tuning in to our Home Loans 101 blog series! | Next week: Questions to Ask a Lender | Want to stay connected? Like us on Facebook +  follow us on Twitter and Instagram. And, as always, check out our current homes for sale in the Nashville area.

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Our agents write often to give you the latest insights on owning a home or property in the local area.