Setting you up for Home Loan Success - what stage is right for you?
It's tough to get through all the fog when it comes to approval status for your Home Loan or Mortgage. Pre-Qualified, Pre-Approved, Fully Approved through underwriting, there are many terms and they are muddied with poor interpretations.
The name of the game is to get into position to purchase a home, or refinance, with as few hiccups as possible. When applying for a home loan, you're initially trying to find out what you might qualify for in terms of purchase price or loan amount, but much of that is dictated by the loan program that is chosen and what you'd like to donate to the cause in terms of down payment, closing costs, and monthly housing payment amounts.
Pre-Qualified, Pre-Approved, Fully Approved
There are many terms that mortgage professionals use when describing the stage of approval that you have obtained. Though different loan originators and companies have named these levels or designations of approval level in different ways, I'd like to shed some light on each process so you can then ask your mortgage professional for clarity on your true approval level.
Pre-Qualified:
Giving someone your name and a little personal information may be enough to make it to this stage in the game. A loan originator, or internet algorithm, may take in some rudimentary questions and compare your answers against lender guidelines for a loan type that you've requested. Pre-Qualified could really be called, "you could maybe - possibly qualify for a loan of some sort as long as you've been honest and no question has been missed". Pre-Qualified doesn't hold a lot of weight in the Real Estate world where home sellers want to know that the contract they're about to get into is 100% solid. this leads us to our next level, Pre-Approved.
Pre-Approved:
You've had a solid discussion about what you'd like to accomplish with your home loan. You know how much money you'll be bringing to the closing table, what monthly housing payment you're comfortable with moving forward with, and loan terms have been thought through. It's at this time that your mortgage professional will ask for additional information so your application answers can be verified and your credit can be pulled. A lender will review your pay-stubs, tax returns, bank statements, credit history, credit FICO score, residential history, job history, and ask additional pertinent questions to ensure that the loan you're looking at is a loan that you'll be allowed to have in the end... You're being "APPROVED" by the loan originator.
So, no matter if your loan originator has been in the business for 10 years or 10 minutes, your approval is as good as this professional's knowledge base and history. Even with that, there are still back office reports that underwriters will pull that may change your qualification status. Maybe that lot of land that you own in Arizona wasn't exactly brought up on the application, but the underwriter will certainly find it in her reports. Is Pre-Approved a bad term? Not at all, depending on who's doling out the approval.
If you really want to get serious and make friends in high places (meaning have the greatest chance of your home contract offer being accepted by the builder or sellers) then this final level is for you.
Fully-Approved Through Underwriting:
If you've read the previous description then you can probably guess what this now means. Your loan application, the exact scenario that you'd like to own a home under, all of your hard work of document acquisition and delivery, maybe a letter describing how your job history has landed you in a new town, and your loan professional's blessing is now sent to the underwriter (dun, dun, duuun) where she'll tear it all apart and analyze it against the guidelines for that particular loan product. If the investor wants 18 months of reserves for your monthly mortgage payment, taxes, insurance, HOA, flood insurance, earthquake insurance, and a cherry on top, then she'll make sure that's what you have to show. The undertaker.. uh um, Underwriter Doesn't Hate You, it's her job. If she does it well then 2007 won't happen again.
Regardless of the stage that you accomplish prior to making an offer on a home, a letter can be provided by your mortgage professional to describe what you've achieved together. Careful though, some lenders call pre-approval "pre-qualified" and visa-versa. It's incredibly important to ask questions and know where you stand.