Understanding Loan Approval

MoneyYour loan approval plays a key role in negotiations and offer acceptance. Securing a firm loan commitment is the key not only to a successful closing of your new home, but it also creates an advantage when negotiating for the best price.

It’s helpful to know the type of loan commitment you have and how it affects the purchase of your home when navigating through the homebuying process.

The Pre-Approval

Typically, the first step is to secure a “pre-approval” of your loan before you begin your search for a new home. While this is not a mortgage commitment or guarantee, it provides you with guidance on how much house you can afford and prevents you from spending to much on a new home.  This is a great first step, however, it’s essential to be working on the next step as soon as possible.

Conditional Loan Commitment

The conditional loan commitment is the lender’s promise to provide you with a state amount of mortgage debt under specified terms and conditions. The commitment is in writing and has an end-date – meaning, if you don’t fund the loan within the specified period, the offer will expire, forcing you to reapply if you still want the loan.

A commitment letter shows home sellers that you are ready to close and adds an extra layer of assurance to the seller, helping the deal to go through. While loans are conditional in the early stages, the conditions are cleared progressively as the loan moves through underwriting and processing.

Handling Your Loan Approval (Commitment)

  1. Determine whether you have a pre-approval or a conditional loan commitment. If it’s the latter, you will be able to focus your attention on the list of conditions and do what you can to fulfill them. If there are conditions on the list that you know cannot be fulfilled, consult with your loan officer immediately to remedy a solution.
  2. The conditions you can not control are those related to the appraisal and home inspections. In addition, all lenders reserve the right to verify employment and funds to close prior to funding the loan.

The goal is to secure your conditional loan approval prior to shopping for your new home and have as many of the conditions fulfilled as possible. This will give you the best advantage in the purchase negotiations and make the closing process move much smoother.


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