Ever wondered what the difference is between being Preapproved vs. Approved when it comes to your mortgage? Ever cared?

It’s easy – the Preapproval comes before the Approval. Makes sense. But what’s the difference?

When working with buyers, we’ll almost always submit a Preapproval letter with our offer to show the Seller our intention to buy. The Preapproval letter is a letter from a local lender stating that according to the information the Lender has from the Buyer at that time, the Lender should be able to lend a particular amount of money to that Buyer for the purchase. It shows the Seller that the Buyer has taken the time to meet with a lender, either in person or by phone, and have their 3 C’s evaluated – credit, capacity and collateral. The Lender will ask very specific questions, enter that information into an automated underwriting system, and receive a “firm” underwriting result almost instantaneously. I say “firm” because it relies on the information the Buyer has given to be accurate, and certain contingencies to be met, but my experience has been that 95% or more of the Preapproval letters my buyers have received have been honored with no major delays.

An Approval takes the process a step further … the paperwork’s been verified and processed, the property’s been appraised to assure the bank’s not loaning more money than the property’s worth, and an underwriter – an actual worker bee somewhere in Cube Farm USA – puts their John or Jane Hancock on the loan result, endorsing it and allowing it to be sent off to closing. It’s the final step in the weeks preceding closing, and once approved the loan documents can be prepared for closing by your closing attorney.

Some lenders use the Preapproval as just a way to get a Buyer excited about buying a home, without actually ever having looked at that person’s financial snapshot to get a clear picture of whether or not they can afford that dream home or cash cow. That’s wrong. And unprofessional (as an aside, did you know that a Lender does NOT have to be licensed? I didn’t.) And you won’t find any of our recommended lenders, like Salem Financial or Prosperity Mortgage, doing anything like that. But it does happen. So go with a reputable lender, someone recommended to you who has a good reputation, and ask questions. Lots of ’em. They like that.

Oh – and when we submit that great bid on the house of your dreams, we’ll ask the Lender to rewrite the Preapproval letter for the exact price we’re offering and not a penny more – we don’t want that Seller to know just how strong a buyer you actually are!