Pre-Approval
Definition of "Pre-Approval"
A lender commitment to make a mortgage loan to a specified borrower, prior to the identification of the property that will be mortgaged. On a pre-approval, unlike a pre-qualification, the lender verifies the financial information provided and checks the credit of the potential borrower. Prospective homebuyers seek pre-approvals because they believe it helps them in shopping for a house. Lenders offer pre-approvals in the hope that the homebuyers receiving them will come back to them for a loan after they contract to purchase. The lender's commitment under a pre-approval is usually expressed in terms of the monthly mortgage payment that the prospective buyer has the income to meet. Converting the mortgage payment into a loan amount requires an assumption regarding the interest rate, which is not known at the time of the pre-approval. Since the lender is not committed to an interest rate, an increase in rates could reduce the approved loan amount.
Popular Mortgage Terms
The interest rate used in calculating the initial mortgage payment in qualifying a borrower. The rate used in qualifying borrowers may or may not be the initial rate on the mortgage. On ...
Standards imposed by lenders as conditions for granting loans, including maximum ratios of housing expense and total expense to income, maximum loan amounts, maximum loan-to-value ...
The number of months for which the initial interest rate holds on an ARM. ...
The period over which the borrower is obliged to make payments. On most mortgages, the payment period is a month but on some it is biweekly. It is not necessarily the same as the Interest ...
A lenders requirements regarding how information about income and assets must be provided by the applicant and how it will be used by the lender. The following categories have evolved in ...
An option attached to a mortgage, which allows the borrower to pay only the interest for some period. A mortgage is 'interest only' if the monthly mortgage payment does not include any ...
Making a payment larger than the fully amortizing payment as a way of retiring the loan before term. Making Extra Payments as an Investment: Suppose you add $100 to the scheduled ...
The maximum allowable increase in the interest rate on an ARM each time the rate is adjusted. It is usually one or two percentage points. ...
A federal agency that guarantees mortgage securities that are issued against pools of FHA and VA mortgages. ...
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