Mortgage 101 | Course 1 of 6
A clear guide to what preapproval means, what a mortgage professional reviews and how to prepare before you begin shopping for an Alabama home.
The Short Explanation
A preapproval is a lender's preliminary review of your finances to determine whether you appear eligible for home financing and approximately how much you may be able to borrow.
It can help you set a realistic price range and show a seller that a mortgage professional has reviewed your information. It is not final loan approval and is not a guarantee that a particular property or loan will qualify.
Know the Difference
Mortgage companies do not always use these terms in exactly the same way. The most important question is how much information was actually reviewed.
A preliminary estimate that may be based mainly on information you report about your income, debts, credit and available funds.
A more detailed preliminary review that commonly includes credit, income, employment, assets and monthly obligations.
The Financial Review
Preapproval is not based on one number. Your overall financial profile and the requirements of the potential loan program are reviewed together.
The amount, source, history and expected continuation of the income being used to qualify may all matter.
Credit scores are important, but payment history, balances, inquiries and major credit events may also affect your options.
Debts appearing on your credit report and certain other obligations are compared with your qualifying monthly income.
Available funds may be reviewed for the down payment, closing costs, reserves and the documented source of deposits.
Prepare in Advance
Your exact document list will depend on your income, employment, loan program and financial situation. These are common starting points.
A mortgage professional may request additional or updated documents after reviewing your application. This is normal and does not automatically indicate a problem.
Understanding the Credit Review
A full mortgage preapproval commonly involves a hard credit inquiry. A hard inquiry may have a small, temporary effect on your credit score.
Credit-scoring models generally recognize that consumers shop for mortgage financing. Multiple mortgage inquiries completed within an applicable rate-shopping period may be treated as a single inquiry for scoring purposes, depending on the scoring model.
Ask whether the review will use a hard inquiry or a soft inquiry, what information will be evaluated and whether documents are required for the letter you will receive.
Protect Your Approval
Your finances may be reviewed again before closing. A preapproval is not the time to make major unexplained financial changes.
Set a Comfortable Price Range
A maximum qualifying amount is based on mortgage guidelines and documented financial information. It does not know how much you prefer to spend on travel, childcare, utilities, savings, repairs or other personal priorities.
Review the estimated principal, interest, property taxes, homeowners insurance, mortgage insurance, homeowners association dues and expected maintenance—not only the purchase price.
Alabama Homebuyer Note
Residential mortgage companies and mortgage loan originators operating under Alabama licensing requirements can be researched through the Alabama State Banking Department and NMLS Consumer Access.
Common Questions
No. Final approval still depends on verification of your information, underwriting, the selected property, appraisal and all applicable loan requirements.
Preapproval letters are generally issued for a limited period, but the exact expiration period varies by company and situation. Updated documents or credit may be needed later.
Yes. Preapproval commonly happens before a property is selected. Final terms and approval cannot be completed until the property and transaction details are known.
Yes. Self-employed buyers may qualify, but the income calculation and required documentation can differ from those used for a salaried employee.
Inform your loan officer promptly. Changes involving employment, income, debts, credit, assets or available funds may affect the loan amount, program or approval.
Speak with your loan officer and real estate professional first. You may need a revised review, additional funds or a different financing structure, and the higher amount may not qualify.
Contact The yMORE Group powered by NEXA Mortgage to discuss your specific home-financing questions.
This course is provided for general educational purposes only and is not legal, tax, credit or financial advice. It is not a commitment to lend, a loan approval or a guarantee of eligibility. Loan programs, documentation requirements, rates, costs, terms and underwriting standards are subject to change and vary based on the borrower, property, lender and applicable program guidelines.
