It is important to know what these terms mean and how to tell if your loan officer is doing what they need too so your loan closes smoothly.
A Pre-Qualification means you state you make an amount of income and you state you work at employers for a certain amount of time making a certain amount of income. Nothing is normally verified by the lender. This can be an effective tool to see if you can possibly obtain mortgage financing. I would be sure to give your loan officer a YTD earnings and the period ending on your most recent pay stub. Also the past 2 years income per your w2 forms or your schedule c profit if self employed. This would make the pre-qualification more accurate. The most common problem is over-stating the income you make because underwriters compare your current YTD too your past 2 years and use a forumula that ends up being lower than your YTD in many cases.
Pre-Approval is supposed to mean you supply your income and assets to your loan officer. There are also stated income and stated asset programs in which you would not supply this information. Usually a verbal verification is done for your employment. This term is the most missused. Loan Offiers will sometimes get this information but have no idea how the underwriter of the lender they are using will calculate income or whether they will use the amount in your bank account or the 2 month average balance. When you do stated income and stated assets you can move forward with confidence. Sometimes if you qualify for this program and you can provide income and assets they will give you a Pre-Approval for Stated so you can just move forward. If you want a lower payment you should supply your income and assets. Stated will cost you more on your interest rate.
A Loan Commitment means the underwriter has viewed your documentation and made the needed verifications to commit to the loan. The only thing that could disqualify you, your income, your credit, and your assets is if there is a change. Example: Loss of job, withdraw from accounts used for assets, or credit score changes. The commitment will be good for x amount of days and after that they would likely verify all of your information again. During the commitment period items typically would not need to be re-verified so withdrawing money to pay bills might be fine. Losing employment likely would not be. They typically will do a verbal verification right before closing to make sure you are still employed.
This is the basics. Ask some questions or run scenarios by me and I will give you my opinion.
Loan Commitment is the most solid of all 3. The underwriter is the person who determines if the lender will do your loan. Not your loan officer. Some are very educated and know what the underwriter will do. I have direct lending and I talk to the underwriter. I find out how she calculates income and use her formula for my Pre-Approval. I verify everything before giving you a Pre-Approval so you know your chances are great to get the loan for your home.
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