The 3 levels of "approval" on your home loan

Well everybody knows that it is important to be "pre-approved" before you start looking for a home. But when you get "pre-approved" you can still lose a house because your loan doesn't get approved. I have lost MANY buyers because they thought they were good to go, when in all actuality they weren't. This can be heartbreaking for a buyer, especially after you have put your time, effort, and most importantly your hard earned money into the process, only to get your loan kicked back at the last minute. Why does this happen you ask. Well there are different levels of "approval" and let me explain them to you.

The first level is, "pre-approval." At this level essentially you have called a mortgage company (or maybe gone in and actually met with them as well) and have given them your social security number, your address, some other important personal information, and maybe how much money you make. They will then, based on the information that you give them pull your credit, work a few math problems, and then issue you a "pre-approval letter" telling you the maximum purchase price you can afford for a home. This is the easiest level of approval to reach, and as such also the most likely to not make it all the way to the closing table.

The second level is "pre-qualification." This level means you are a little more approved than with a "pre-approval" but not really that much more. At the "pre-qualified" level most likely the lender you called or broker has keyed in your information into some type of desktop underwriting software which came back with an "approved/eligible" result. There are still a ton of things that can go wrong with a "pre-qualification" as, like I said, it's really not that much different than "pre-approval." It is better though, as the system will pick up a few different things that the loan originator might have missed in the "pre-approval", and a little more information is required as well. To be "pre-qualified" you actually need to enter in an address for a specific property, along with the taxes and an estimate of insurance and what not. "Pre-qualified" is usually property specific meaning you are "pre-qualified" to buy 1234 Main St. as opposed to just any house at a given price.

The third level can't be reached until after you are under contract. You actually have to sign a thick package of disclosures, turned in all of the documentation that is required, and filled out a full mortgage application. This level is called "conditional approval." When you have reached this level in the approval process, your loan originator has probably called you up and asked for any number of completely random items that the lender is asking for. This could be a phone number to your landlord, documentation of addresses that show up on your credit report, older tax returns, proof of insurance, or anything else they feel like asking for. If you can provide everything that they are asking for than you are almost there.

The last level of approval is "FULL approval." If you have gotten this far, than the next step is going to the closing table. There are very few things that will hold you up at this point. You have given the lender everything they have asked for. They have reviewed and accepted it and in their eyes you look like a good risk, and they are willing to loan you the money to purchase the home.

It was a long road, with more than a few obstacles to overcome, but you did it. Congrats!