Pre-Qualifying VS Pre-Approvals VS Rate Holds
You have probably heard Banks and Brokers alike refer to rate holds, rate locks, pre-qaulifying, and being pre-approved. What exactly does this mean?
It is important to know is that THEY DO NOT MEAN THE SAME THING.
YOU NEED TO BE PRE-QUALIFIED!
This is where I stand out as a Mortgage Planner. My job is to know the policies of every Bank and Monoline Lender that I present, so when you write an Offer to Purchase, or are shopping for a home, you have an "edge".
Before your deal is submitted,
- We will have discussed your application in and your financial goals in detail.
- Established how your income is dervied and what can be used, or not used, as income.
- Discussed your credit bureau and your current Credit Score.
- Established where your down payment and closing for the purchase will be comming from.
- Determined a Purchase Price Range that fits your budget.
- Given you a list of all the supporting documentation that will be required.
- Discussed if getting your rate held is the best course of action based on your timeline for buying. Getting the rate held is only nessessary when the market is in an increasing rate environment.
With this background work being done, it allows me to do the majority of the Lender's work for them, so all they have to do review the documents we send to them AND review the property. By addressing the questions that the Lenders will have, and, submitting the answers along with the supporting documents, we get a quicker responce with an approval that contains no surprises within the conditions.
This allows my clients to be fully informed AND will give them the confidence about the Mortgage they are selecting and the Lender they want to do business with.
What happens if rates go down once your application has been submitted? No problem! If rates go down the interest on your mortgage will reflect the lowest rate reached, for the product selected, within the duration of your submission to closing date. If rates go up, you are safe with the rate at which you your application was submitted at.
Pre-Approval vs Rate Holds
Being Pre-Approved means a lender will hold a given rate on a certain mortgage amount for a given period of time, usually between 60 and 120 days. The Lender, or Mortgage Broker/Agent, may ask a few detailed questions about you, but, will not ask for any verification from you. Your application is submitted, and the Lender's Computer issues a Standard/Generic pre-approval. It will contain certain generic clauses that the mortgae will be subject to - which will include customers employment and down payment verification. So it it is a little better than just a rate hold, but not by much. It does give you a head start on house hunting, but your final approval is still subject to an appraisal of the home and a credit review of your finances.
Pre-approvals used to be very common as we used to get fully discounted rates... not so much any more. The reason... there is no profit for the Lender to devote staff hours for a deal that may not happen. They now add a premium to the rate that a client wants held.
A Rate Hold is simply the amount of time that a lender will guarantee an Interest Rate on a Mortgage Amount, usually between 60 to 120 days . A rate hold alone does not benefit you. Basically they are saying "sure, you can have that mortgage amount at that rate, but when you are ready to proceed you may not qualify".