Pre-approvals and rate holds in home loans


When it comes to getting a home mortgage approved, “pre-approval” can be one of the trickiest factors in determining mortgage rates. With the housing market always at least somewhat in flux, many people looking to buy turn to pre-approval as a way to find a preferred rate as they search for a home.

But even for mortgage professionals, the term pre-approval can take on different meanings. And to make things even trickier, it is often conflated with the term “rate hold,” which to the average consumer, as well as many lenders, sounds like two different things. However, some mortgage professionals view them as the same. So, how does one make sense of this already complicated process when people inside the industry can’t even seem to completely agree?

Pre-approval versus rate hold First, what is pre-approval? While, again, there is some variance depending on who you ask, there appear to be two common factors that most agree on. One, the borrower receives a certificate that assures them of the ability to write a purchase offer without a “Subject to Finance” clause. Two, it shows that the borrower completed a process that calculated their debt service ratio and reviewed their support documents to confirm they met a lender’s financing guidelines.

Essentially, it means that as a homebuyer your credit and income have been thoroughly analyzed and you are qualified for mortgage financing. And since those two points would probably conform to the average homebuyer’s idea of pre-approval, that part is somewhat intuitive.

A rate hold, on the other hand, is, depending on who you talk to, either the same thing as pre-approval, or very different. The main point of contention revolves around the amount of paperwork involved. Some lenders will allow a rate hold without reviewing any documents. Others won’t. Some will only grant a rate hold if they have subject property information. Others don’t require it.

While pre-approvals are a little more concrete than rate holds, they both offer the buyer what could be very advantageous options when shopping for a home. An issue is how to navigate through a process that sometimes people who issue mortgages are unclear about.

That makes this an area where consulting a mortgage broker is probably the best bet for a potential homebuyer. Since even mortgage experts can disagree on these issues, having a broker on your side who can see the pre-approval forest through the rate hold trees can be of enormous benefit.

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