CONVENTIONAL MORTGAGE

Conventional mortgages are the ‘traditional’ mortgage most people think of when they talk about home loans. It doesn’t have government backing like FHA and VA loans have and is the reason they generally have stricter guidelines.

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The Difference Between a Conventional Loan Prequalification and Preapproval


Before you look at homes, you need to know how much you can afford. You may have a number in your head, but lenders may not agree. Finding out how much you can afford (officially) before looking at homes helps narrow down your search for a home and speeds up the process.

There are two ways to do it – conventional loan prequalification and preapproval.

Many buyers mix up the two terms. One gets you in the door and gives you an advantage in a bidding war and the other is an estimate of what you can afford, but doesn’t hold any ‘official weight.’

Let’s look at the differences below.

Prequalifying for a Conventional Loan in Colorado

A conventional loan prequalification is the equivalent of an estimate. Most details provided are verbal, so there’s no official proof of what you can afford.

We’ll discuss your credit score, income, debts, and assets. I’ll use those numbers to see how you fit within specific lenders’ guidelines and provide an estimate of what you can afford. This is not a formal conventional loan preapproval and isn’t anything sellers or real estate agents will accept as proof that you can get financing.

The prequalification is a great starting point. It tells you where you stand and what you need to get qualified. Many people use this step months before they look at homes so they know what they need to fix or how much more money they need to save to buy in the price range they want.

Preapprovals and Conventional Loans

A preapproval is more official. To secure it, you apply for the conventional loan program in a specific loan amount. Lenders will pull your credit and ask for proof of your qualifying factors.

Lenders need:

  • 30 days of paystubs
  • 2 years of W-2s
  • 2 years of tax returns (if you’re self-employed)
  • 2 months of bank statements
  • Proof of employment

This starts the process. Lenders determine how much you can afford based on these factors. If you meet the conventional loan requirements, they’ll write a preapproval letter.

What’s a Preapproval Letter?

The conventional loan preapproval letter tells sellers (or real estate agents) that the lender reviewed your qualifying documents and preapproves you for the loan amount stated. This gives sellers reassurance that you can secure financing if you bid on the home (and they accept it).

The preapproval letter includes the following information:

  • Borrower’s information
  • Lender’s information
  • Loan program
  • Down payment amount
  • Loan amount
  • Loan term (number of years of the loan, such as 30 years)
  • Interest rate
  • Property type

The letter also contains any conditions the pre-approval is contingent on, such as the property details (since you didn’t find a home yet), and any other conditions the lender has based on the information you provided.

The pre-approval letter expires after 60 to 90 days depending on the lender. If it expires and you haven’t found a home yet, you can update the letter by providing updated paystubs and any other information the lender needs to be updated (they’ll pull your credit again too).

Why is Preapproval Important?

Sellers want the preapproval letter for reassurance. If they accept your bid, they agree to take their home off the market. If you can’t come through with the financing and you break the contract, the seller is back at square one, trying to sell the home again.

With a conventional loan preapproval letter, there’s a higher likelihood that your financing goes through and you buy the home. The letter tells sellers you are working with a lender, you have a working relationship, and are on your way to securing the final steps of your financing.

A preapproval letter isn’t a guarantee of approval, but it’s a step closer than walking into a home without ever talking to a lender.

Are you Ready to get Preapproved?

I work with buyers every day that are preparing to buy a home. The conventional loan preapproval process is fast and gets you into homes faster, especially in today’s competitive buying environment. I’d be happy to sit down with you and discuss your financial situation.

We’ll look at the different loan programs available and determine if conventional loan financing is the right option. I’ll go over the available terms, down payment options, and various other details to make sure you understand the loan process, what to expect, and that you choose the loan program that suits your needs the most. Let’s talk today!

Purchase Qualifier Refinance Rate Checker

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