Pre-Approval


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Preapproval

A commitment by a mortgage lender to provide a loan with a certain monthly payment to a borrower. A lender offers pre-approvals in hopes that the borrower to whom it is offered will use that lender in securing a mortgage. It should be noted that, while the monthly payment is fixed, the interest rate and therefore the total amount available to be borrowed are not. This can limit the potential borrower's options as he/she seeks to buy real estate.

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.

References in periodicals archive ?
Within these guidelines, procedures should be fixed for periodic pre-approval of foreseeable action by the manager (e.
RSG Properties owner & chairman Raj Sahni said: "The pre-approval by DTCM for the construction of Sabah Rotana, a five-star hotel and hotel apartments project, is another milestone for RSG Properties.
Raj Sahni, owner and chairman of RSG Properties, said: "The pre-approval by DTCM for the construction of Sabah Rotana, a five-star hotel/hotel apartments project, is another milestone for RSG Properties.
In addition, approved Third Federal home purchase borrowers can take advantage of two unique products that enable them to lock their rate at pre-approval for 60 days, and buy that next home before they sell.