Ask the Expert: Common Financing Questions

Q. What is the difference between Pre-Qualified and Pre-Approved?

A. A pre-qualification consists of a discussion between a home buyer and a loan officer. The loan officer collects basic information regarding the buyer’s income, monthly debts, credit history and assets, and uses this information to calculate an estimated mortgage amount for the home buyer. This is not exact since the interest rate has not been locked yet. The pre-qualification is not a full mortgage approval, but rather estimated what a buyer can afford.

A pre-approval, on the other hand, is a comprehensive approach using basic information as well as electronic credit reporting. Pre-approvals, in most cases, are true mortgage commitments. The lender commits to financing your home and indicates the total mortgage amount available to you. Again, monthly payments are approximate until interest rates are locked.

You have greatly improved negotiating power once you are Pre-Approved. Sellers are more likely to negotiate with someone who already has a mortgage approval in hand. The pre-approval letter lets a Seller know that they are working with a serious buyer and who can close on a property more quickly.

Q. What’s included in my monthly payment?

A. Principal and interest on your loan. If the loan is interest only, your payment does not include any principal reduction. Depending on the terms of your loan, the payment may also include insurance and property tax, in the form of impounds.

Q. What do lender’s closing costs include?

A. Closing costs cover processing and administration of your loan. In addition to a loan origination fee (points), you will typically be asked to prepay interest charges, to cover the partial month in which you close and impounds for property taxes and insurance. Points are based on a percentage of your loan amount, usually 1-2%, with each percent equal to 1 point.

Q. When do my mortgage payments start?

A. Usually about 30 days after closing. The actual date of your first payment will be included in your closing documents.

Deborah Bremner
The Bremner Group at Coldwell Banker
REALTOR, 00588885,
(O) 310-571-1364 DIRECT
(D) (310) 800-2954

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