Understanding Pre-Qualify vs Pre-Approval vs Final Loan Approval
Minneapolis / St Paul, MN: In the mortgage lending world, lot's of terms get thrown around, a lot of time causing confusion.
YOUR VERY FIRST STEP in the home buying process is getting approved for financing, so here we will explain the differences in mortgage loan approvals, so both you are your Real Estate Agent know where you really stand with correct terminology.
Mortgage Pre-Qualification
This is where most people start in the mortgage process, with a basic mortgage pre-qualification. This is a quick assessment to determine whether your income, credit, and debt-ratio may fit current home mortgage loan programs, and provides you with a 'looks good' estimated amount of what you may be able to borrow.
A pre-qualification generally means a Loan Officer has taken some of your basic information, and they may or may not have reviewed a credit report, but you have NOT supplied all your supporting documentation for review, like pay stubs, W2's, bank statements, or in many cases, you may not have even completed a full application yet..
- No valid approval letter is given at this stage.
- This is not binding. There is no commitment to lend from the lender
- No interest rates can be locked or guaranteed.
Think of this as more of your talked to a lender, who said it sounds OK, but nothing has officially been done, and this type of approval can be done in a few minutes.
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Standard Mortgage Pre-Approval
The next step up from pre-qualify is a full mortgage pre-approval.
Here, a full and complete application is taken from all applicants, your credit report is reviewed, and an initial evaluation of your supporting documentation, including pay stubs, tax returns, bank statements, W2's, is done.
With all that, your lender will also run your application through the automated underwriting systems of Fannie Mae, Freddie Mac, FHA, VA, or even USDA to get a basic approval. No underwriter has reviewed or signed off on your application yet.
An approval letter can be prepared and given to your Real Estate Agent at this time as a sign of confidence that you are a serious home buyer, and that a mortgage company has reviewed your information. A pre-approval letter is not a loan guarantee, but it shows there is a very strong likelihood of final loan approval.
This type of pre-approval can be done in a few hours, and is generally performed by your Loan officer.
Full Underwriter Pre-Approval
In a full underwriter pre-approval, the lender does all of the steps of the standard Pre-Approval, but also takes the additional steps of sending your file to an underwriter, and obtaining all the necessary fraud reports, verification's of employment, tax return verification's, and more.
This type of pre-approval can take two to three weeks. Generally the only thing missing here is the information on the exact house; the purchase price, address, appraisal, and title company commitment. But everything else, credit, income, source of funds for down payment, etc., have been verified and approved.
This full underwrite is clearly better than a standard pre-approval, but is also really only necessary on a small number of applications that may be marginal in nature, and the Loan Officer wants an underwriter to sign off early in the process. Very few lenders do this on a regular basis, as they would need to increase rates and costs to cover all the extra costs and staff reviewing applications that may not ever close.
FINAL UNDERWRITING APPROVAL
Final underwriting is when your been fully pre-approved, but now you have a successful sales contract with a closing date (you bought a house).
Before we can proceed any further, you'll need to sign the full application packet of documents based on this exact home price, address, etc. This includes the actual application, Loan Estimate, Appraisal Authorization, and an Intent to Proceed.
An interest rate can also now be locked and guaranteed.
Upon receipt of your signed application, the lender begins the final underwriting process, including ordering the appraisal, a title commitment, and putting your application in front of an underwriter for either full credit review, or updated with the specific house information. You will need to pay for the required appraisal at this time. Most people put it on a credit card.
During the underwriting process, it is very common for the lender to ask for additional information. This is not a sign that there is anything wrong. A common example is they want an updated pay stub, or updated bank statement, because the ones previously submitted are getting old. Once the underwriter has been satisfied that your application meets all guidelines, your application will become Clear-to-Close.
Once your application is clear-to-close, your file still needs to go through a few more regulatory compliance verification's before finally being sent to the lenders Closing Department. These are the people who will prepare all the legal loan documents you will sign and closing, and who will send the money to the title company on your closing date.
The Final Final Step
Typically in the last two weeks prior to your home closing, where you sign all the documents and get your keys, you will be given your final numbers, with the exact amount you'll need at closing for your down payment and closing costs. This document is known as a CD, or Closing Disclosure.
With everything looking good, you'll soon be the official owner of YOUR NEW HOME.
Ready to Make Your Dream Come True?
Call (651) 552-3681 or visit JoeMetzler.com/apply to apply online.
Cambria Mortgage, NMLS 274132. Serving #Minnesota #Wisconsin #Iowa #NorthDakota #SouthDakota #Colorado #Florida.
This is not an offer to lend or to extend credit, nor is this a guaranty of loan approval or commitment to lend. Information here can become out of date, and may no longer be accurate. Products and interest rates are subject to change at any time due to changing market conditions. Not all programs available in all states. Actual rates available to you may vary based upon a number of factors. Consumers must independently verify the accuracy and currency of available mortgage programs. All loan approvals are subject to the borrower(s) satisfying all underwriting
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