What is the difference between prequalify, preapproval, loan approval and final approval?
When receiving an offer on a property I have listed I like to see a preapproval from the lender to give to my sellers to show them that the possible buyers have been prequalified. Many agents do not understand the meaning of preapproval and think that the buyers have been approved for the loan. This is not correct. Preapproval or prequalify means the buyers have sat down with a lender and have analyzed their credit report, income and debt and how much the buyers are borrowing and have been given a letter of approval showing that at this particular loan the buyers appear to have the ability to be approved for this loan. They may not even fill out a loan application at this point.
When the purchase contract is signed the buyers fill out a loan application (1003 form) and submit income statements, bank statements, and whatever else is needed and a credit report is pulled. The lender or mortgage broker submits the package to the lender for approval. There may be conditions that need to be satisfied before the loan is approved. Once the conditions are satisfied, the Mortgage broker may get a conditional approval based on more conditions that have to be satisfied. Once all the conditions are satisfied the lender will issued approval to cut loan documents. At this point the loan is looking very good and funding is just a few days away. This is really final approval and the selling agent can start to relax. Once documents are signed and sent back to the lender the loan is funded and if there is no 3 day recession the loan and property can be closed.
Understanding the process of a loan is very important because you know what stage the loan is in and can ask the mortgage broker the right questions and you can make the necessary decisions and tell your seller the correct information.
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