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Financing
Pre-Qualified
You can be pre-qualified by a lender, by an agent, by yourself. The
term means that someone has taken a general look at your income and
expenses and plugged them in to a debt-to-income ratio formula. Loan
pre-qualification does not include an analysis of your credit report
or an in-depth look at your potential to buy a home.
Bottom Line: Pre-qualifying yourself before you start looking for a
home will give you a general idea of the price range you can afford.
It will not nail-down an interest rate for you, and that factor and
others will affect the monthly payments a bank will allow you to
carry.
Pre-Approval
When you are pre-approved, it means a lender has looked closely at
both your credit report and your income. The lender will tell you the
maximum amount of loan they will offer, and which loan programs you
qualify for. You'll also have a better idea about your interest rate,
or you might lock-in a specific rate. Bottom Line: Now you can go
shopping for a home with confidence about your buying power--but it
still doesn't mean the bank will approve the loan. Your income and
credit report will be checked again before closing, and the home
itself must be approved.
Loan Commitment
The bank will not issue a loan commitment until it has approved both
the house and you. The home appraisal must meet the lender's
guidelines- -usually meaning the home must appraise at or higher than
the sales price. The bank may require more information if the
appraiser mentions anything the bank feels should be checked. A
comment such as "observed a crack in the foundation and basement
appears wet," will raise a red flag to the lender--and likely generate
a structural inspection (which you must pay for unless the seller
agrees to share or absorb the expense). Other things that affect a
loan commitment: The home's title must be cloud-free, meaning there
are no problems associated with it (no outstanding liens that can't be
paid at closing; no right-of-way problems; no litigation in progress,
etc.). Your credit profile will be checked again to make sure it
hasn't changed in a negative way. Bottom Line: The loan commitment
letter is issued only when the bank is sure it will lend, so the
commitment date on your contract to purchase should normally be closer
to closing than to the date you make the offer.
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Content on this website is for illustration purposes only. 
