Knowing exactly what a Pre-Approval is and isn’t will help you understand how the mortgage process works more generally. Whether you’re using a Mortgage Broker or going directly to a Credit Union, Bank or Retail Mortgage Lender, Pre-Approvals generally mean the same thing and follow the same process internally. They’re a conditional commitment from a lender based on a documentation of your finances and credit pull. They’re conditioned on a variety of factors that may change by the time you actually obtain the property and submit your Final Application. We recommend reading each Scenario below, for the most in depth understanding of Pre-Approvals.
An important difference with using a Mortgage Broker is that we can Pre-Approve you with numerous lenders all at once. We take your loan application through our Loan Origination System, consolidate it into one digital file and register the loan at numerous different wholesale mortgage lenders. This allows us to not only see who’s offering the best rates/fee/pricing on the day of your Pre-Approval but also monitor which lending option is best once you actually sign the purchase agreement and are ready to submit your Final Application.
Purchase: Scenario A
(Still Searching For A Property)
In a scenario where you’re still pursuing properties and haven’t signed a purchase agreement yet, the primary purpose of the Pre-Approval is to confirm whether you qualify for a mortgage and how much you can afford. In your application, you will select “TBD” for the property address and estimates will be used for the property taxes and insurance based on the expected purchase price. The interest rate the Pre-Approval is based on is where a lot of misunderstanding can occur for the following reasons.
Although the Pre-Approval will provide the rate you qualify for, you won’t actually have a property address to base it on. You're getting pre-approved for a hypothetical loan on a particular date in a certain zip code. Rates are dependent on a wide variety of factors that we may not know yet at this point. Also, interest rates fluctuate multiple times per day and you typically won’t lock an interest rate until you have a signed purchase agreement. Another way to look at it is that you might qualify for a 4% interest rate when you’re pre-approved but not actually land a home until 2 months later when rates rose to 5%. You also might end up buying a home that was more expensive than what the Pre-Approval was based on which changes the Loan-To-Value ratio and other terms of the loan. During our Pre-Approval Review meeting, we'll discuss the interest rate you would qualify for as of that day but also explain the limitations and assumptions used. We'll also discuss the meaning and impact of Points, also referred to as Rate Buy Downs, where you can opt for a higher rate to receive a Lender Credit or you can opt for a lower rate by paying an additional fee to the Lender at Closing.
It's important to note that although we have “Lock and Shop” options available where you can lock the rate without a signed purchase agreement, it's typically not recommended. This is because rates are unpredictable and they’re just as likely to fall as they are to rise. “Lock and Shop” methods often result in higher rates relative to the current market and/or require up-front fees. Lenders want to be compensated one way or the other for the risk they take under this arrangement. However, if you’re interested in this option just let us know and we’ll discuss your options.
Once you’re Pre-Approved, we'll work closely with you and your Realtor to ensure you’re submitting the most competitive offer possible while also staying within your budget. After your offer is accepted by the Seller and you’ve signed the purchase agreement, we'll meet again to discuss locking the Rate, reviewing the official Loan Estimate and preparing for Underwriting submission. Please visit the Apply Page for more information on the full application process and what to expect along the way.
Purchase: Scenario B
(Ready To Place An Offer On A Property)
In some cases, you may be obtaining your Pre-Approval right before you’re ready to place an offer on a property. If this is the case, you will still complete your application using the “TBD” as the address. You can list the potential address at the end of the application in the comments section, send a message through the portal or email us. The Pre-Approval in this case will give you a very close estimate of the exact interest rate, closing costs, taxes, insurance, ETC. However, as with Scenario A, you likely won’t lock the rate until you’ve officially signed the purchase agreement and we’re ready to submit the Final Application. Since Rates change up to 4 times per day, the exact rate generated for your Pre-Approval will likely not be the same by the time you’re ready to lock. We will discuss this further in our Pre-Approval Review.
In this scenario where you’re ready to place an offer, the Pre-Approval process is more urgent and may require additional time for us to prepare the loan for your Final Application (assuming the offer is accepted). Be sure to mention the urgency so we can prepare accordingly.
After your offer is accepted by the Seller and you’ve signed the purchase agreement, we'll meet again to discuss locking the Rate, reviewing the official Loan Estimate and preparing for Underwriting submission. Please visit the Apply Page for more information on the full application process and what to expect along the way.
Purchase: Scenario C
(Already Signed The Purchase Agreement)
After we've received your application and documentation (including the signed purchase agreement), we'll get you pre-approved with the best lending options available, review your options together and prepare to submit your final application to the Lender.
Once you've reviewed the Official Loan Estimate and several other Disclosures are signed, you will have officially submitted your Final Application to the Lender. Please visit the Apply Page for more information on the full process and what to expect next.
Important Notes on Purchase Pre-Approvals:
If 90 days expires from the time you were pre-approved until the loan closes, we may need to re-pull your credit. The results of the new credit report may change the terms you were originally pre-approved for. Don't let this deter you, often the changes are very slight. Also, hard credit pulls for mortgage related inquiries usually only reduce your credit score around 3 to 7 points and should go right back up as long as you continue making timely payments. Also, if you're interested in a Pre-Approval with a soft credit pull, please let us know. This may be an option in certain cases.
Since rates are changing constantly, we will be monitoring whether these changes impact your Pre-Approval amount/terms. We'll be updating both you and your Realtor every step of the way. As you narrow things down and prepare to move forward, it's important to have us review the purchase agreement before you sign it. We'll want to make sure there aren't any contingencies that would have a negative impact once we submit the final mortgage application.
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