Home Loan Pre-Qualification Vs. Pre-Approval

While shopping for a home loan, brokers and lenders will offer to pre-qualify or pre-approve you for a mortgage. Home loan pre-qualification and pre-approval are different and distinct processes, so it is important for you to understand the difference.

Pre-Qualified

A loan officer or loan processor working for a mortgage lender or broker can typically pre-qualify you for a home loan within an hour. Getting pre-qualified for a home loan is a good first step that will let you know if you should proceed to the pre-approval process. To get pre-qualified you will need to complete a mortgage application and allow the broker or lender to pull your credit. They will review the mortgage application and your credit and let your know if you are pre-qualified.

Pre-Approved

Only a mortgage underwriter can pre-approve you for a home loan, loan officers and processors can not. Typically mortgage brokers do not have underwriters on staff, so they typically can not pre-approve your home loan. A valid pre-approval is the best tool you can have when shopping for a new home. The key is to ensure that it is valid. A valid pre-approval has been underwritten by an authorized underwriter (an underwriter is the final person that says your loan is approved). If an underwriter pre-approves your home loan application upfront, all you have to do is find the home you want, have it appraised, and then you should be able to close in just a few days. Some mortgage brokers and lenders will issue pre-approvals that have not been reviewed by an authorized underwriter, be sure to ask.

To get pre-approved for a home loan you will need to provide the underwriter with your income and asset documentation (W2’s, Bank Statements, etc). The underwriter will review your credit, mortgage application, documentation, and then approve you for a set loan amount and property value. Once you have been pre-approved for a home loan you are ready to start shopping. The process typically takes a couple of days.

Knowing exactly what type of home loan you can obtain will allow you to shop and negotiate with confidence. For example, you could inform a seller that you are pre-approved for the mortgage and you are prepared to close next week. If the seller needs to close quickly, it will not matter if there is another buyer that cannot close for weeks or months. Plus, sellers do not like to take their properties off of the market for long periods of time. The ability to close quickly is one way to get a great deal.

Realtors will work much harder for you if they know that you have a valid pre-approval. Think about it, if the realtor is spending days or weeks driving you around, they want to make sure that they are going to be compensated for their efforts. By ensuring the realtor that you are approved, they will be willing to spend more time working for you.

In summary, a pre-qualification is a good place to start. Once you have the pre-qualification, you should proceed to the pre-approval process. Watch out for mortgage brokers and lenders offering pre-approvals that have not been fully underwritten by a mortgage underwriter.