There is no set definition in lending that outlines a “Pre-Approval” vs. a “Pre-Qualification” which can lead to a lot of surprises, delays and stress.
1. Pre-Qualification WITHOUT Credit Review
– A credit report is not reviewed by a lender; income, assets, or employment documents are not reviewed, only discussed during a phone call or entered into a website.
– Loan officer relies on the client conversation before making an assumption regarding their ability to obtain financing. Some lenders call this a pre-approval.
2. Pre-Qualification WITH Credit Review
– A credit report is pulled and reviewed by a loan officer, but no income, asset, and employment documentation is requested/reviewed.
– If the lender tells this buyer that he/she is pre-approved, the stage is set for problems. Surprises can show up on pay stubs, tax returns and banks statements that can lead to last minute documentation requests, delays in closing, or no closing at all. Many lenders call this a pre-approval.
3. Pre-Approval WITHOUT Underwriting Review
– A credit report is pulled and reviewed by a loan officer.
– Income, employment and asset documentation is obtained and reviewed by a loan officer.
– Loan officer runs the file through an Automated Underwriting System.
– Most lenders call this a pre-approval, even though a live underwriter has not reviewed any of the documents. A live underwriter is the person who will later issue the final approval.
4. Our Certified Guaranteed Approval
– The loan application has been reviewed by the lender’s underwriter, including a full review of credit, assets, income and employment.
– A conditional Approval has been issued by the underwriter, so we are clear on anything else (aka conditions) that may be needed for the final approval.
– This allows the buyer to make aggressive offers, close quickly, while being 100% confident that they will close on time, under budget, with no surprises