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The following should help you, as a
prospective home buyer, understand the different stages of the
mortgage approval process. A proper understanding of
the different stages of getting approved for your home loan will
help make the process easier, and less costly.
Pre-Qualification
When you are considered pre-qualified, it does not mean
that you have a mortgage. Nor does it mean that your lender is
even prepared to offer you a loan. What it means is that you
now have an idea of the price range that you can afford. Your
pre-qualification is based on the unverified information which you
told to your lender: your stated income, assets, and liabilities.
This information is not verified by your lender and the amount for
which you are pre-qualified is not guaranteed.
Pre-Approval
The pre-approval process contains two parts. First,
it begins with your lender verifying your information. This is
done by giving your lender permission to get a copy of your credit
report. Your credit report is used not only to confirm the
information which you already provided to your lender, but also to
determine your "credit score" or "credit rating". This "credit
score" or "credit rating" allows the lender to make the
determination whether making the loan to you is an acceptable risk
for the lender. If your credit rating is within the lender's
pre-determined range for approving a loan, then you become
pre-approved for your loan. If, however, your credit rating is
too low, then you may not become pre-approved for your loan.
Sometimes, wrong information on your credit report, or certain
circumstances, may turn a low credit rating into an acceptable
credit rating. If there are problems with your credit report,
you should discuss these with your lender. If, after
everything is reviewed and discussed, you do not qualify for a
specific loan, talk to your lender about other options.
Once you become pre-approved for your
loan, then the lender still has to do some work turning your
pre-approval into an approval. This includes appraising your
new home (if you have already found it), and finally certifying that
your loan is an acceptable risk to the lender.
Approval
After the lender has appraised your new home, and after everyone is
assured that there are no problems with title -- basically, after
your lender has accepted everything -- then, your loan is given
final approved.
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