How is a conditional approval different from a preapproval?

By
Mortgage and Lending with Horizon Lending Services, LLC NMLS # 198754

When attempting to purchase a home, there is no doubt that you are going to spend some time researching the many terms being tossed around to try and get a better grasp on what exactly all the jargon means for you. One of the most important parts of the borrowing process is being preapproved or prequalified for a home loan. These two terms in themselves are often confused, but there's yet another term that's thrown into the mix that can add to the confusion: conditional approval.

 

When you are prequalified for a home loan, that means that some information available to lenders (like your time of employment or location) might mean that you can qualify for a loan product. A pre-qualification letter is extremely simple to get, and you have likely gotten many in the mail before. It's the first step to applying for a home loan. Your lender will just need some basic details about you to give you a pre-qualification letter. Based on that info, they can give you a ballpark figure of how much you may qualify for. You can complete this over the phone or online in most cases, usually free of charge.

 

However, it's important to realize that a pre-qualification letter is only a guess. It doesn't look at your finances or take an in-depth look at your credit. A pre-qualification letter is just letting you test the waters to see how much you may be able to qualify for if you happen to move forward with the pre-approval process.

 

When you go to get pre-approved for a loan, it shows you are actually expressing real interest in buying a home. You need to get pre-approved before you can get serious about the house hunting process. The pre-approval process is much more involved and it will require you to complete an official mortgage application, typically with an application fee included. You will also need documentation proving your income, debt, and assets so your lender can run some calculations about your affordability.

 

Usually, you will not have found a house yet when completing the pre-approval process. This means the application's "property" section will be left blank. As soon as you are pre-approved, however, your lender will be able to give you a specific amount that you can actually qualify for. They may even propose an interest rate and, in some cases, you'll be able to lock it in.

 

The next step after being pre-approved is to get what's known as a "conditional commitment" from your lender. This is a written statement that says they promise to give you this much for X if Y is applicable. Typically, this means that your lender has agreed to give you a mortgage of this many dollars so long as your employment or income don't change in the meantime. They may also put in some basic criteria that the house you end up purchasing has to meet.

 

A seller will prefer a buyer with a pre-approval letter every day of the week. To a seller, it shows that this buyer is in a better position to move forward with the process without any delays. This will give you a big leg-up over other buyers who are interested in a home who aren't pre-approved. A seller wants to get out of their house ASAP, and dealing with a buyer who is not pre-approved means the risk of them wasting valuable time trying to negotiate with this buyer just have the home sale fall through when it turns out the buyer cannot get financing.

 

As a buyer in a rather competitive housing market, it's worthwhile to you to go through the hoops of getting pre-approved before you get serious about your house search. When you do find a house that you are interested in purchasing, a pre-approval letter will allow the seller to actually take notice of your offer and, if they accept it, you can move forward with the process right away.

 

Contact Horizon Lending Services today to get pre-approved for the most ideal loan for you.

Learn more about different types of home loans. 

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Rainmaker
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Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

This all can be pretty hairy. Thank you for the clarification of everything.

May 14, 2018 10:20 PM #1
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Pat & Sharon Mistowski

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