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          Learn more about the NJ mortgage process with our educational resources for homeowners.

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        • What is a Mortgage?A mortgage is simply a lien that is put on a property by a bank or lender of money to assist a consumer to obtain funding in order to purchase that property.
        • Mortgage Pre Approval vs. Pre QualificationAs a technical matter is there are actually 3 levels of “Pre-Approval” available as a lead-up to your mortgage.
        • What Factors Go Into Qualifying for a Mortgage?There are four main categories that a bank will review when they qualify you for mortgage financing, otherwise known as the four pillars of qualifying: Income, Assets, Credit, and Debt.
        • What is PMI Insurance?Private Mortgage Insurance (PMI) is quite simply an insurance policy that protects the mortgage lender in case of default on the mortgage.
        • New Jersey Mortgage Application ChecklistBeing fully prepared leading up to your application can prevent a lot of troubles and tribulations, which can be detrimental and emotionally taxing especially after you’ve gone to contract on your new home.
        • What Is The Minimum Down Payment For a House in NJ?Depending on your circumstances you may be looking to get into a property for the least amount of cash possible.
        • What Are The Three Different Types of Mortgage Lenders?There are 3 different types of lending companies that originate mortgage loans. Banks, Brokers, and Mortgage Bankers.
        • What Determines Mortgage Rates?A variety of factors lend their hand in the determination of where a particular lender will be on rates.
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Understanding Mortgage Pre Approval vs Pre Qualification

There are a lot of misconceptions floating around the real estate community regarding the difference between Mortgage Pre Approval vs Pre Qualification. The fact is that the definition can vary depending on who you talk with. This can hold true even within the same organization. As a technical matter is there are actually 3 levels of “Pre-Approval” available as a lead-up to your mortgage. Though you may get different opinions within the industry about the names of each level, here are the definitions and the names that we feel are appropriate:

1

Pre-Qualify

At this level, the borrower has spoken with a Mortgage Loan Officer. They have discussed the circumstances of the borrower in detail. The Loan Officer has collected information covering the 4 pillars of qualifying including income, assets, credit, and debts. The Loan Officer has taken that information and has run numbers to make sure that the borrower qualifies. The Loan Officer may have even run a credit report to confirm that there are no credit issues that may be prohibitive. If the client indicates that their credit is “Excellent” then sometimes the Loan Officer may choose not to run credit in order to avoid the “Hard pull” on the credit report. Upon feeling comfortable with the borrower’s ability to qualify, the Loan Officer will issue a “Pre-Qualification” letter that the client can present in conjunction with making an offer on a home.

2

Pre-Approval

Level 2 starts out like level one with a few additional requirements:

  • The Loan Officer inputs the borrower’s information into a mortgage origination system.
  • The Loan Officer definitely runs the borrower’s credit report
  • The Loan Officer collects documents from the client to confirm that the information that has been conveyed by the client is accurate according to mortgage banking standards
  • Upon completion of the application and confirmation that the information provided is accurate, the Loan Officer runs the client through one of several automated underwriting systems to confirm that the loan application is acceptable for approval according to conventional, FHA, VA or USDA standards. Once confirmation is achieved by the system, then the loan office issues a pre-approval letter to the client that can be used when the client is presenting an offer.
3

Fully Underwritten Pre-Approval

Level 3 involves taking an eligible loan application after completion of level 2 and submitting it to an underwriter for what is commonly known as an “Approval Subject to Contract”. This extra protection is something that is commonly reserved by the industry for borderline cases, however, it is usually available upon request from the client and can escalate the value of an offer in the eyes of a seller. If the seller knows that the potential buyer of a home has already gone through the scrutiny of underwriting, they may look at the financing as near-guaranteed and it may help illuminate the offer as being closer to a cash offer than any other offer with mortgage contingencies attached.

The important thing with any pre-approval is to make sure that you are completely honest with the Mortgage Loan Officer and that ANY and ALL pertinent information be disclosed upfront. Many reports are run as part of the approval process, and items not disclosed upfront will more than likely show up during the process, at which point it is too late to fix them.

The best way to look at qualifying is to look at your Loan Officer as your attorney and the underwriter as the Judge. The Loan Officer’s job is to take your information and try to navigate it through the guidelines and requirements of the mortgage banking industry just like an attorney would try to navigate his client’s rights and case through the legal process. In both cases, it is their job and their duty to try to get the best result for their client within the guidelines they have to work. Being honest with your Loan Officer is your best shot at navigating your application to approval.

Have more questions relating to Mortgage Pre-Approvals?

Get customized answers for your situation here:

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Resources

  • What is a Mortgage?
  • New Jersey Mortgage Application Checklist
  • Mortgage Pre Approval vs. Pre Qualification
  • What Is The Minimum Down Payment For a House in NJ?
  • What Factors Go Into Qualifying for a Mortgage?
  • What Are The Three Different Types of Mortgage Lenders?
  • What is PMI Insurance?
  • What Determines Mortgage Rates?

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