pre-approved mortgage loan


A misleading phrase which actually refers to a commitment by a lender to loan up to a certain amount of money to a person, assuming the property qualifies.

The phrasepre-approved mortgage loanis misleading because it is not a promise to give a mortgage loan.

In reality, it is a commitment to loan up to a certain amount of money, for a specific term and at a specific interest rate, but only if the property qualifies and circumstances do not change.

The pre-approved loan amount is based on the borrower's income and credit rating. The actual amount loaned may end up lower, because the lender will not loan more than 95% of the lending value of the property. (Or at most 80%, if you want a conventional mortgage loan rather than a high-ratio mortgage loan.)

In addition, if the borrower's income or credit rating change, or if they choose to apply for a mortgage loan with a different loan term, the 'pre-approval' will not apply.

The pre-approval process is still a useful tool for a buyer, because it makes them aware of exactly how much the lender is willing to loan them. However, it should not be treated as an unbreakable guarantee that a mortgage loan will be given.

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