The Difference Between A Mortgage Loan Commitment And A Mortgage Prequalification Letter.

Apr 27th, 2009 by ama

When you are out shopping for a home, your Realtor will more than likely ask you for a home loan prequalification letter.Listing agents usually will not show a home to someone unless they have been prequalified for a loan.

The sales agent wants or needs this letter to determine what kind of buyer you are, what kind of home you can afford and if you are actually in a position to buy a house.

But many people mistakenly believe that a prequalification letter means they are approved for a mortgage.This could not be further from the truth.

A prequalification letter is nothing more than a loan officer’s or bank employees opinion of your credit worthiness and their opinion what loan amount you will qualify for.

The mortgage prequalification letter states that the loan officer has reviewed the home buyer’s credit, income, work history etc and that the borrower is “Pre-Qualified” for a mortgage with a certain dollar amount.

The operative term in the letter is pre-qualified. That means before you are actually approved.

In just about every instance, the document states in no uncertain terms that it is not a commitment to lend money.

Does this mean anything to you?

What it means is that a pre-qualification letter is not worth the paper it’s written on. It is non binding, and the lender or broker is in no way obligated to issue a mortgage to you.

A mortgage loan commitment on the other hand is a document which virtually guarantees that you will receive a mortgage as long as you provide the lender with all the documentation and conditions required.

A commitment is issued after you loan file has been fully underwritten. It clearly and legally spells out all the terms of your mortgage.

A mortgage loan commitment is binding and the lender must issue the mortgage if you fulfill all the requirements. It can not “change its mind” as to weather they want to give you the money or not.

Why Do I Need That?

Well, the bottom line is that you may have been pre-qualified for mortgage, but when it comes right down to it, you may not be able to actually get approved for a loan.Unfortunately, this is not uncommon. Many times people have gone out, done all the right things, find the home of their dreams, only to be left heartbroken.

This is a terrible crisis. They lost their home, their deposit money, everything. And on top of it, they have nowhere to sleep.

Why risk it, get a commitment letter in the beginning and avoid any trouble.

It also helps you bargain with the seller of the home too. When you negotiate for your new home with a seller, having a mortgage loan commitment in your hand is virtually the same as being a cash buyer.

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