PreQualification versus PreApproval versus Conditional Loan Approval.
What do these words mean? Is there a difference between them? What are the differences? Are these differences important?
Speaking and working with a mortgage lender prior to beginning a home search is essential. Figuring out loan qualifications, monthly payments, and cash required is an important first step. But: there are different levels of loan prequalification and if correctly done, it can also be an important part of a successful purchase offer.
This video discusses the 3 different levels, explains what they are and how they can (or sometimes cannot) be helpful, and how best to proceed.
They are as follows:
(1) Prequalification: this is a basic level of advance work that results in a general idea of what type of loan could possibly be obtained. No documentation is provided to the lender for evaluation and sometimes there isn't even a credit report. Its only use is for informational purposes.
(2) Preapproval: this second level includes supplying income and asset documentation to the lender; it also includes pulling a credit report. It yields a computer-generated "finding," which indicates a likelihood of loan approval but does NOT result in an actual loan approval. Most offers are written with this level.
(3) Conditional Loan Approval: this results in an actual loan commitment issued by a human underwriter. Loan conditions are given and it creates the strongest possible purchase offer, as no loan contingency is needed on the offer and it is no different than a cash offer.
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