Understanding the Difference Between Being Pre-Qualified and Pre-Approved for a Mortgage Loan

If you are in the market to purchase a new home, you might want to consider meeting with a lender in order to find out how much you can afford to pay on your new home purchase. By meeting with a lender, you can successfully determine a price range for your home purchase, which will help you to significantly reduce your choices. At the same time, when you meet with a lender to discuss how much you can afford, you might be a bit confused by the terms associated with this prescreening process.

Getting Pre-Qualified

While there is some disagreement within the industry regarding what it means to be “pre-qualified” for a loan, most lending institutions agree on one definition. The most commonly accepted definition is that getting pre-qualified for a loan means that the lender has made an educated guess about how much you can afford to purchase a home. This guess is based entirely on the information that you provided to the lender and may change significantly once the lender verifies the information that you provided. Of course, the more honest you are with the lender, the closer these figures will match with the amount you are actually approved to borrow.

Getting Pre-Approved

Again, there is some disagreement surrounding what it means to be pre-approved. The general consensus of this term, however, is that the lender has actually verified the information that you have provided. With this information, the lender was able to more accurately determine how much of a loan you would be able to receive. Although this is still not a guarantee of approval, you can be relatively certain that you will be able to qualify for a loan up to the amount the lender has pre-approved.

The Benefits of Getting Pre-Qualified and Pre-Approved

There are many benefits associated with getting pre-qualified or pre-approved for a mortgage loan. The most obvious benefit is that it gives you a better idea of how much you can afford to pay on a home. Of course, you should also take a look at your budget for yourself and consider both your short-term and long-term goals in order to be certain you can truly afford the amount you have been pre-qualified to receive.

When it comes to making an offer on a home, being pre-approved for a loan can also be advantageous. Since you went through the trouble of getting pre-approved and because it is relatively certain that your loan will be approved, a home seller may accept your bid over another person’s bid if you are pre-approved for a loan. Also, by being pre-approved before you start house hunting, you may be able to close the deal sooner once you find the perfect home.


About the Author: Shannon Kietzman is a well known author and trusted resource. Shannon regularly writes for http://www.electronicappraiser.com/, which is a leading provider of home appraisals that offers a nationwide personalized instant informational report about house values. For more information, please visit www.electronicappraiser.com .

5 Tips for Taking Out a Mortgage Loan

When it comes time to purchase a home and take out a mortgage, there are several mistakes that many homebuyers and homeowners do on a routine basis. In order to be certain you put yourself in the best financial position possible and that you properly protect yourself and your home, be sure to implement these five simple tips.

Tip #1: Do Your Research

Many homebuyers, particularly first time buyers, are so excited about purchasing a home that they fail to do their research about available types of mortgages. Be certain to take your time to investigate the types of mortgage loans available and choose the one that suits your finances, future goals, and lifestyle the best.

Tip #2: Don’t Have Too Much Credit

When it comes time to apply for a mortgage loan, many lenders will frown upon your application if you have an excessive amount of credit. Even if you are responsible with your credit cards and other loans, having too much credit can be almost as bad as having poor credit. So, don’t apply for any new loans before it comes time to apply for your mortgage.

Tip #3: Be Honest on Your Loan Application

Some homebuyers are tempted to lie on their mortgage applications, particularly when it comes to how much they make. Not only can misleading information get you caught up in a mortgage you really can’t afford, lying on a mortgage application is a federal offense. Although most lenders do not prosecute people for lying on their applications, it is certainly not a risk that you want to take. In addition, if you are approved and the lender later discovers that you lied, you may be forced to pay the entire remaining balance of the loan all at once.

Tip #4: Never Sign an Incomplete Application

Just as you may be tempted to stretch the truth in order to be approved for a loan, an unscrupulous lender may also put false information on your application in order to gain approval. Therefore, make certain all of the blanks are filled in before you sign your application.

Tip #5: Get the Home Inspected

Although getting your home inspected is an added cost that you may not want to have to pay, it is in your best interest to get it inspected before you make a purchase. A home inspector looks over every aspect of the home and will be able to tell you if there are any problems with the home. This way, you can better determine if you really want to purchase the home or you can renegotiate the price according to the repair that need to be done. By getting the home inspected, you give yourself one more chance to make certain you are getting what you ask for with your new home.


About the Author: Shannon Kietzman is a well known author and trusted resource. Shannon regularly writes for http://www.electronicappraiser.com/, which is a leading provider of home appraisals that offers a nationwide personalized instant informational report about house values. For more information, please visit www.electronicappraiser.com .

What is PMI?

You have probably seen the initials PMI when you have applied for a home loan. If you are paying PMI, also known as Private Mortgage Insurance, it is probably because you put less than 20% down on your home mortgage.

PMI can be defined as an insurance that is required to protect the lender in the event the borrower defaults on their loan. PMI is paid for by the borrower and is included in each monthly mortgage payment. Private mortgage-insurance companies offer the insurance to lenders, who then are able to accept lower down payments than they would normally accept. The insurance then provides what the equity of a higher down payment would provide to cover a lender's losses in the unfortunate event of foreclosure. Therefore, without mortgage insurance, you might not be able to buy a home without a 20% down payment.

The cost of PMI increases as your down payment decreases. For example: The cost of PMI on a 10% down payment is less than the cost of PMI on a 5% down payment. Your PMI premium is normally added to your monthly mortgage payment.

The decision on when to cancel the private insurance coverage does not depend solely on the amount of equity in you home. The final say on terminating a private mortgage-insurance policy is reserved jointly for the lender and any investor who may have purchased an interest in the mortgage. However, in most cases, the lender will allow cancellation of mortgage insurance when the loan is paid down to 80% of the original property value. Some lenders may require that you pay PMI for one or two years before you may apply to remove it.

To cancel the PMI on your loan, you must contact your lender. In most cases, an appraisal will be required to determine the value of your property. You will probably also be required to pay for the cost of this appraisal. Another way of canceling the PMI on your loan is to refinance and to get a new loan without PMI.

At one time, homeowners didn’t know they had the option of canceling their PMI. Then, in 1998, a new federal law called The Homeowner’s Protection Act (HPA) required lenders or servicers to provide certain disclosures concerning PMI for loans secured by the consumer's primary residence obtained on or after July 29, 1999.

In the past, most lenders honored consumers' requests to drop PMI coverage if their loan balance was paid down to 80 percent of the property value and they had a good payment history. However, consumers were responsible for requesting cancellation and many consumers were not aware of this possibility. Consumers had to keep track of their loan balance to know if they had enough equity and they had to request that the lender discontinue requiring PMI coverage. In many cases, people failed to make this request even after they became eligible, and they paid unnecessary premiums ranging from $250 to $1,200 per year for several years. With the new law, both consumers and lenders share responsibility for how long PMI coverage is required.


Under HPA, you have the right to request cancellation of PMI when you pay down your mortgage to the point that it equals 80 percent of the original purchase price or appraised value of your home at the time the loan was obtained, whichever is less. You also need a good payment history, meaning that you have not been 30 days late with your mortgage payment within a year of your request, or 60 days late within two years. Your lender may require evidence that the value of the property has not declined below its original value and that the property does not have a second mortgage, such as a home equity loan.

Greg Sullivan is the President of www.electronicappraiser.com, a leading provider of home appraisals offering a nationwide personalized instant home appraisal service. For more information, please visit www.electronicappraiser.com.