Pre-Qualify / Pre-Approval
Eagle Home Loans will gladly provide qualified applicants with a pre-qualification or pre-approval letter to share with your realtor.
Why?
In today’s competitive market, a pre-qualification letter that accompanies your purchase contract provides an additional layer of confidence to the seller that you are a solid buyer.
Eagle Home Loans will spend time reviewing your application and answering any questions you may have. We review your credit report and address any concerns. We believe it is important to take these extra steps upfront to avoid surprises during the loan process.
When we provide a pre-qualification letter, we do so with confidence that your loan will close. However, this letter is not a final approval, as final approval is provided by the lender.
What’s the Difference Between a Pre-Qualification and a Pre-Approval?
Pre-Qualification
- Requires an application
- Includes a credit pull
- Review of current income and debts
- Quick process
- Qualified applicants receive a pre-qualification letter to share with their realtor
- Most realtors require a pre-qualification letter before submitting an offer
Pre-Approval
- Requires the same information as a pre-qualification
- Includes additional financial documentation
- All documentation is submitted to an underwriter for review
- Provides pre-approval of the desired loan amount
- Once an offer is accepted, the loan file is updated with the property address
- Completes all financial underwriting upfront
- Speeds up the remaining underwriting process after a contract is submitted
- May stand out to sellers in a competitive market
Home Loan 101
As a borrower, one of your first choices is whether you want a fixed-rate or an adjustable-rate mortgage loan. All loans fit into one of these two categories, or a combination “hybrid” category. Here’s the primary difference between the two types:
Fixed-rate mortgage loans have the same interest rate for the entire repayment term. Because of this, your monthly principal and interest payment will stay the same, month after month, and year after year. It will never change. This is true even for long-term financing options, such as the 30-year fixed-rate loan. It has the same interest rate, and the same monthly payment, for the entire term.
What is an ARM or Adjustable Rate Mortgage?
Adjustable-Rate Mortgage (ARM)
An adjustable-rate mortgage (ARM) is a type of home loan where the interest rate changes, or “adjusts,” over time. Typically, the rate stays fixed for an initial period before shifting to an adjustable rate, which is why it’s considered a “hybrid” product. For example, with a 5/1 ARM, the rate remains fixed for the first five years, then adjusts once every year thereafter. The “5” represents the fixed period, while the “1” represents the frequency of adjustments.
There are two distinct phases to an ARM:
- Fixed Period: The interest rate stays the same during this introductory phase, which can last five, seven, or ten years depending on the loan. This is sometimes called the “teaser” rate.
- Adjusted Period: Once the fixed term ends, the rate begins to change at regular intervals, based on a benchmark index and market conditions.
What is a 5/1 ARM?
A popular “hybrid” ARM is the 5/1 ARM, which carries a fixed rate for five years, then adjusts annually for the life of the loan.
What is a 5/5 ARM?
In the case of a 5/5 ARM, the rate is fixed for the first five years, and can change down or up only once every five years thereafter until the end of the loan.
What is a 3/3 ARM?
A 3/3 ARM has a fixed rate for the first three years and then adjusts every three years.
As you might imagine, both of these types of mortgages have certain pros and cons associated with them. Here they are in a nutshell:
- ARM Loans: Start off with a lower rate than fixed loans, but have the uncertainty of adjustments later on. With an adjustable mortgage product, the rate and monthly payments can rise over time.
- Fixed Loans: The rate and monthly payments never change. However, you will pay for that stability through higher interest charges compared to the initial rate of an ARM.
Alright, this isn’t a loan, but you need to know about it! If you put less than 20% down on a home, mortgage insurance protects your lender in case you quit making payments. The cost varies by type of loan. Together, we will discuss the difference in cost as this may help determine the best loan type for your needs. Mortgage insurance may be a tax write-off depending on your income level, due to a recent change in the tax laws. Also, once you believe you have at least 20% equity, you should contact your lender to find out about ending Mortgage Insurance, also known as PMI.