All mortgage approvals are not created equal
Home buying can be a stressful process, especially if you’re in a hot market. Homes can go fast and everyone is looking for that competitive edge to secure the home of their dreams. One way to get a leg up on other buyers is to get a pre-approval, but not all approvals are created equal. We are going to break down the differences for you, so you don’t miss out on the home of your dreams.
Pre-qualification & Pre-approval
While the term pre-qualification has gone by the wayside with the introduction of TRID (the Know Before You Owe rule), you may still hear the term used. While it’s not used frequently, pre-qualification refers to the most basic level of a mortgage pre-approval.
The terms of a pre-approval can vary across lenders, but the basic concept of a pre-approval is when a lender reviews your credit report and the financial information you provide them to determine how much you’ll be approved for. This type of pre-approval does not go through an underwriting process and, while this can be helpful in determining your price range, it won’t give you the same competitive edge as a pre-approval with automated underwriting or conditional approval.
Pre-approval with Automated Underwriting
Automated underwriting is essentially the electronic evaluation of your credit, income, assets and property you want to purchase. Apps like Guaranteed Rate’s Digital Mortgage SM solution streamline the pre-approval process by providing an automated analysis of your loan file in minutes rather than days. This type of pre-approval or real approval*, as we call it, gives you a distinct advantage over buyers who have not gone through an underwriting process.
Benefits of Pre-approval with Automated Underwriting
- You don’t waste time looking outside of your price range.
- Real estate agents and sellers know you’re a serious buyer.
- You can make an offer on the spot when you find your dream home.
- Your offer is stronger than a pre-approval with no automated underwriting,
If you have complicated income and/or assets or if inventory is scarce in your area, you might want to consider asking for a conditional approval. A conditional approval is when your entire loan file, and all needed documents, have been reviewed by a mortgage professional, approved by automated underwriting and then reviewed by an actual underwriter. This type of approval is obtained before you find a home, so just know the conditional approval will be contingent on the appraisal, clear title and condo approval (if applicable).
You’ll typically need to pay up front for this type of approval, however, the payment will be applied to your closing costs.
Final Approval is what you will need to actually close on your home. This does not happen until everything an underwriter requested is approved and a Clear to Close (CTC) is issued.
While a conditional approval is usually not necessary when you begin your home search, we highly recommend that your first step in the home buying process be a pre-approval with automated underwriting.
Happy house hunting!
*“Real Approval” means an automated underwriting system approval based upon credit information supplied by applicant and subject to Guaranteed Rate’s review of loan documents. Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Restrictions may apply, contact Guaranteed Rate for current rates.
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