Getting pre-approved before starting the homebuying process is one of the most critical steps in the homebuying process. Savvy sellers will not consider a buyer’s offer to purchase without a loan pre-approval. The winning bid usually goes to the buyer who showed up prepared, and it usually starts with a loan pre-approval.
But here’s the part most homebuyers don’t know. The California Residential Purchase Agreement lists three different types of approvals, and they are not all created equal. One signals to a seller that you’re serious. One tells them you’re probably serious. And one tells them almost nothing.
Let’s examine the differences between each one:
Pre-Qualification
A prequalification is the most basic level of lender approval, and in today’s competitive environment, it is often considered incredibly flimsy/weak. In order to satisfy the requirements for a prequalification, all that is typically needed is a phone call with a qualified loan officer where they determine, based on the information provided, that you should qualify for a mortgage. A prequalification does not fact-check any of the information provided.
Pre-Approval
A pre-approval goes a step further than pre-qualification in that a formal loan application is taken and documents are provided. The information and documentation provided by the applicant are then reviewed by a licensed loan officer.
The mortgage loan originator will verify employment details, calculate the qualifying income, determine if there are sufficient assets, run credit, and select a specific loan program. Additionally, the loan originator will run the file through AUS (automated underwriting software) to ensure that the file qualifies subject to an acceptable subject property.
Fully Underwritten Preapproval
A fully underwritten pre-approval goes a step further than the generic pre-approval in that the file is reviewed by an actual underwriter. Rather than having just the loan officer complete a review of the file, an underwriter will also complete the review.
This is typically done for borrowers who have complex situations or for those with unique mortgage needs. It is important to note that most loan files do not require a fully underwritten pre-approval. A competent mortgage loan originator knows when this is necessary and when it is not.
In conclusion, it is important to have a pre-approval when writing an offer on a property. If you want leverage in your real estate negotiations, the loan pre-approval is the best starting point.
Whether you’re just starting your home search or getting ready to make an offer, having the right pre-approval can make all the difference. At Bluefire Mortgage Group, our team is here to guide you through the process, review your options, and help you feel confident when it’s time to buy. Contact us today at (760) 930-0569 to get started on your pre-approval.
