Pre-qualification vs. Pre-approval • Pre-qualification is an unverified test run of the loan application process. The lender uses the applicant's income, expenses, debts, assets, and credit history to ascertain the applicant's credit worthiness and to estimate mortgage payment limits. • Pre-approval is a commitment by the lender upon completion of the application with credit checks, employment verification, and fees as required. A pre-approved applicant receives a letter stating that a mortgage loan is approved for a certain amount of money for a certain amount of time, subject to an appraisal of collateral property. How much you can offer for a home (or other property) will depend on six factors: 1. Gross income 2. Credit score 3. Interest rate 4. Type of loan product 5. Amount of cash you have available for a down payment, appraisal, closing costs, and other required fees 6. Your outstanding debts Keep this point in mind when you are shopping for funding: Two things have to be qualified and and approved to receive mortgage loan funds -- the borrower and the property itself. Any loan approval that you receive will be contingent upon an acceptable appraisal of the property used for collateral. The mortgage problems presently being experienced in some parts of the country can be explained, at least in part, by several years of lax discipline in the mortgage funding and underwriting market. These functions left the possession of experienced market makers and was assumed by a relatively inexperienced group of brokers and underwriters. The problem was exacerbated by the relative distance distance between the originators of the mortgages and the ultimate funding sources ("securitizing" mortgages.) Other factors contributing to the "crisis" were truly predatory lending practices by the unscrupulous and the impatience of consumers to get their share of the pie. Too many loans were made to lax underwriting standards and today many housing markets and our financial markets are paying the price. In Wisconsin improper lending practices have not been a major problem. Wisconsin has a smaller fraction of its mortgage loans that are subprime than is the case elsewhere, and our foreclosure rate is only about one-third of the national rate, according to the Wisconsin REALTORS® Association. Here in the Northwoods credit has been and remains available to qualified borrowers at historically attractive interest rates for new homes, existing homes, vacant land, and construction loans. |