Are you ready to apply for a mortgage but confused by the types of pre-approvals and what they mean? We break down the 3 main types of mortgage approvals – Prequal, Preapproval, and Commitment Letter below!
Prequal
In a pre-qualification approval, the lender will obtain some information from you, the borrower. Usually, this information is relatively surface level, like your current income, any current debts, and your current address information. From this information, the lender can then decide on the mortgage amount you’d likely be able to take on. It’s important to note that pre-qualification is considered a basic level of approval, and the approval could change.
Preapproval
Preapproval involves a bit more, including an official application process. Your credit report will also be pulled and verified for this type of mortgage approval. You may also be required to provide past pay stubs to add to your application and confirm income. When your lender has this information, they can create an approval that carries more weight than a pre-qualification can. This type of approval is also still conditional but has less likelihood of changing than prequal.
Commitment Letter
For a commitment letter pre-approval, the process is the most in-depth. In addition to providing information required for a prequal, the official application, and getting your credit pulled, a loan underwriter will personally review your application. Ideally, once the underwriter has finished, they can provide a signed approval to grant you the mortgage loan. There are 2 types of commitment letters: Conditional and Final. A conditional commitment letter approves you, the borrower, for a certain loan amount if specific conditions are met. A final commitment letter is provided when all conditions have been met and the lender agrees to loan you the specified amount.
A mortgage prequalification of any kind is a great way to see how much home you can afford. Plus, getting pre-approved or approved early in your home buying process helps you narrow down options and stand out to sellers.
Image used under license from Shutterstock.com
