The Difference Between Loan Pre-Qualification and Loan Approval

I noticed lately that more and more prospective buyers are asking me to show some properties without knowing for sure if they can "really" get a loan. Some believe they are "pre-approved" only to find out they cannot meet certain conditions to close the loan later.

Unless you're paying all cash for a property, a good real estate agent will encourage you to get a loan approval in advance before you start looking at properties on the market. It is not enough to get pre-qualified. Pre-qualification means answering a few questions. It is sort of a "quick screening process" but it does not mean your loan is approved.

A loan approval means you submitted a complete loan application, proof of income, proof of assets and other related documents to the lender. The lender then checks your credit, reviews and underwrites your file and issues a loan decision which can be an approval or denial.

The lender should provide you a copy of your loan approval, estimated closing costs, monthly payments, disclosures and other details about your loan. The loan approval may also contain some funding conditions like a requirement to have the property appraised, inspected, repaired, etc. Make sure to get everything in writing.

Note that you will be required to put a deposit on a home and sellers will require a copy of your loan approval before entertaining your offer. You can avoid a lot of frustrations and surprises by preparing your loan first. Many lenders are willing to provide a loan approval in advance at no cost. If your lender is not willing to do this before you start shopping for a home, change your lender.

Now that you know the difference, don't get pre-qualified. Get pre-approved. Most importantly, take time to read and understand the terms of your loan to avoid frustrations and surprises.

If you don't have a lender yet, please let me know so I can assist you.