This is a guest post provided by Ben from BankAim.com.
My friend here at Financial Planning Tips asked if I would write a guest post and I gladly accepted. If you read BankAim many of you know that I spent 5 years of my life as a loan officer. One of the common questions about mortgages I receive is…
What is the difference between Prequalification, Preapproval and Loan Approval?
These three aspects of a loan are the 3 main steps in the mortgage process.
When you contact your bank or broker the first step is to get prequalified.
Prequalification is the most basic and simple part of the process. The Loan Officer will take a look at your credit and judge whether you will qualify for a loan based on bits of information you verbally provide. Information like income, assets, debt and other financial obligations will help loosely determine if you will qualify.
In most cases this step in the process is a green light. Only if credit is very bad, or there is absolutely not enough income will you be denied at this point.
Preapproval is when all the income documentation is gathered and submitted to the lender for approval. At this point the lender reviews all information in the file. Once your loan is approved you have pre-approval. I know it sounds funny; the loan is approved so you have pre-approval. Well when the loan gets approved by the lender there are a few more things that have to be collected before we get final approval.
The lender will write up a list of conditions and require that an appraisal be ordered to determine the value of the home. The conditions list may include a variety of things the lender wants to see before clearing the loan for funding. This could be verification of assets, verification of employment, bank statements, etc.
Final Loan Approval happens once all conditions are met and the appraisal is approved. At this point the loan will be sent to funding. If you are doing a refinance chances are you will have to wait 3 days for what is called the 3 day right of rescission. If you decide that you want to back out of the loan you have 3 days to do so (During my 5 years as a loan officer I had 2 people rescind during the 3 days… all that work for absolutely nothing. They went through all that work for a $400 appraisal bill.). For a purchase you will not have the 3 day right of rescission. Once the loan funds your stressful mortgage loan experience is over.
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