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  • Writer's pictureKim ORourke

Have you been Pre-Approved or Pre-Qualified?

Have you been pre-approved?

You may have heard the terms pre-qualification and pre-approval before. You may have even heard the term Initial (or Conditional) Approval. Do they all mean the same thing? Are they different? Technically, those terms mean different things, but in practice these words get used interchangeably, even by industry professionals. Let’s talk about the differences so you can be armed with the strongest offer possible.

Pre-qualification: this term is usually when you have applied for a mortgage, but not submitted any documentation for review. If you ever hear a phrase like, “We can approve you in 15 minutes or less!” this is what they are issuing you. Honestly, pre-qualifications like this are hardly worth the paper they are written on since none of your credit, income, or assets have been verified. Large, online lenders typically issue pre-qualifications. Sometimes online lenders call their letters pre-approval letters, even if no documents have been reviewed. This means their buyers may have a higher likelihood of having their financing fall through, and is one reason why having a pre-qualification letter from an online lender makes your offer weak.

Pre-approval: a pre-approval means your application and verifying documents have been reviewed. The mortgage loan officer will have pulled your credit and reviewed your credit report, verifying that your credit score and credit history qualify for the product you are considering. Your income documents will have been reviewed to confirm your qualifying income. The mortgage industry has many rules regarding how we calculate qualifying income based on the type of income received (such as base, overtime, commissions, self-employment), frequency of pay (hourly vs salary, and fixed vs. variable), and history of receiving that income. Your assets to cover closing costs will have been reviewed to ensure funds are coming from eligible sources. Your debt-to-income ratio will have been reviewed. Finally, your entire application will have been submitted through the Automated Underwriting System (also known as AUS) to verify approval. This type of review typically has a turnaround time of 24 hours if all necessary documents were turned in upon application. Sometimes the loan officer may need additional information from you prior to issuing a pre-approval.

Conditional (also called Initial) Approval: This type of approval can only be issued after a lender’s Underwriting department has reviewed your application. Spotting this type of approval is easy! It will be on the lender’s letterhead and will contain a list of every condition that needs to be satisfied for loan approval. This type of approval is the strongest option. Not all lenders can issue this type of approval prior to having a contract accepted on a home, but I can!

Contact me to start your conditional approval so your offers will be the strongest they can be!

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