James Wheeler Mortgage Pro

The difference is typically only the policy of the company you're dealing with. The term pre-approval is considered by many to carry more legal baggage than the term pre-qualification, so its use is restricted in some quarters. Either way, it's based merely on your credit report and some unverified Q&A.

A pre-approval or prequal is generally issued by your loan officer or mortgage broker early on, to lend credibility to an offer. It does *not* go to an underwriter and is definitely not indicative of your file being processed, submitted, and conditionaly approved in underwriting. That would be an approval, not a pre-approval. - Tue May 12 2009, 09:20

It is absolutely not strange or suspicious that your mortgage broker or loan officer would accept your loan application without a fully-executed sales contract. Although it is certainly unusual for a seller to request a loan commitment prior to accepting your offer, it is not that unusual to obtain a loan commitment while you're still shopping for a house. In fact, it can be very smart, if you're a serious buyer. Remember that a preapproval / prequalification letter is typically only based on a credit review and brief interview. A commitment letter (loan commitment) means your file has been processed and submitted to underwriting and conditionally approved. That's radically different.

There are three C's supporting the mortgage underwriting stool: Credit, Capacity, and Collateral. The collateral analysis naturally requires property-specific documents -- but a commitment can be issued *without* a specific subject property, using a TBD address. If you're approved in terms of your credit and capacity, then you can have the utmost confidence about shopping for any property that meets the parameters of your approval. And because your file has already gone through the initial, possibly lengthy turntimes for initial underwriting that are so prevalent currently, you will be able to close faster when you actually do finalize a sales contract. - Tue May 12 2009, 06:22

That depends on multiple factors and varies from one local area to another across the country. - Mon May 11 2009, 19:29

You can determine whether a given house is affordable / approvable for you by working closely with a competent, conscientious mortgage professional as you and your agent go through the house hunting process. It's generally best to think of your maximum purchase price as a relevant range. Why? Because some of the variables such as the interest rate are in flux initially. But more importantly, significant components of the monthly payment vary based on the particular home you're considering. Property taxes, homeowners insurance, and association fees can be markedly different for homes in the same area in the same price range. The taxes and insurance will be escrowed and included as part of your total monthly payment on government loans such as FHA and VA, and on many conventional loans as well. Association fees are not escrowed, but these fees as well as taxes and insurance are always converted to a monthly expense for the debt-to-income ratios we use in the underwriting analysis for mortgages. Loan approvals depend on reasonably acceptable monthly expenses compared to monthly income. A purchase price or loan amount is not approved or affordable in isolation, and it's important to keep that in mind when trying to figure out "the exact amount of house" you can buy. - Mon May 11 2009, 19:22

If you have enough cash to buy the new house without a mortgage, then a short sale on your current house won't matter. Otherwise, you probably won't be able to, because you'll have difficulty qualifying for the new mortgage, and because buy-and-bail strategies are not tolerated. - Sun May 10 2009, 15:57