Q.: Can you tell me what the difference is between a lender’s “pre-approval” for a mortgage and a “commitment”? Aren’t they the same thing?

A.: Pre-approval is a tool that mortgage lenders use to assist potential home buyers in determining their maximum buying limits as defined by their verifiable income, cash available for use in the transaction, credit scores and how much they carry in other debt payments such as credit cards, car and student loans.

A pre-approval is different from a commitment letter; it is based on the initial review of your pay stubs, W2s (or sometimes full tax returns) and bank statements that you provide to the lender and review of your credit report. It is not a commitment to lend.

A final loan commitment will be done, in most cases, after you have found your home and you have agreed on a price.

Once a purchase and sales agreement is submitted to the lender, a more detailed review is started of: your application, credit report, verifications of all information provided on your application, verification of employment, a final review of your income documentation and asset information by a mortgage underwriter along with clear title commitment and appraisal on the home.

At that point, an underwriter for the lender (typically not the loan officer or originator) will issue a formal commitment letter.

The underwriter’s role is to review the information submitted and decide whether the borrower, property and mortgage applied for meets the requirements of the loan requested.

That means that the final review work and due diligence has been completed on the loan and the lender has agreed, in writing, to “commit” to making the loan.

It is actually a commitment to lend as an offer is made to the borrower subject to the terms and conditions included in the commitment letter and upon signing the commitment letter and returning it to the lender, a contract of sorts is created.

However, the pre-approval will give you peace of mind knowing what loan amount is available to you while you look for your new home.

It is also extremely helpful to your Realtor as they now have something in writing that shows you have taken the first steps in the process.

This information has been provided by the Greater Manchester/Nashua Board of Realtors in conjunction with the New Hampshire Union Leader’s Advertising Department. Any questions about the content should be directed to the realty board at 166 S. River Road, Bedford 03110; or by e-mail to info@gmnbr.org.