Explaining the Mortgage Process, from “Pre-Qualification” to “Pre-Approval” to Closing

Understanding the Mortgage Process

If you are considering a home purchase, you have probably heard that getting pre-qualified for a mortgage is an important step in the buying process. But what does a pre-qualification require, and does it differ from being pre-approved? On paper, the terms “pre-qualified” and “pre-approved” seem to be interchangeable. However, when it comes to purchasing a home, there are several important distinctions.

Getting pre-qualified is generally considered the first step in obtaining a mortgage. The prequalification process is typically free and can be completed online, in person, or over the phone in a matter of minutes. All information is self-reported and intended to give the lender a general idea of your assets and liabilities, as well as your income and credit score. Based on the details you provide, the lender will be able to give you a ballpark estimate of the amount you will qualify for, the dollar amount that you will need for closing costs and down payment. It is important to keep in mind that this estimate could change depending on how accurate your information is, as well as whether interest rates go up or down while you are in the house hunting process.

After you’ve been pre-qualified, the next step in obtaining a mortgage is to get pre-approved. At this point, the lender will need to verify the information you provided in the pre-qualification. This typically requires you to provide bank statements, tax returns, paystubs, and government issued ID, and can include additional items depending on your circumstance. Your lender will also pull a credit report after obtaining your permission and Social Security number. Most mortgage loans are considered “conforming” loans, meaning that they conform to certain guidelines set by Fannie Mae and Freddie Mac, the quasi-government agencies that dictate how much you qualify for based upon your income, assets, liabilities and credit history. The underwriter will comb through the documentation you provide in order to ensure that your information will meet the loan’s guidelines.

Once this process is complete, you will be given a preliminary approval or loan commitment, but the loan process still isn’t over. When you identify a property for purchase, the underwriter will also be examining the purchase contract, the appraisal and the chain of title for the property. Although you may have already spent hours gathering documents, it is important to note that, based on your personal circumstance, an underwriter may ask for additional verification on certain details or updated documentation if several weeks have passed since your “preliminary approval.”

Once the underwriter has reviewed and approved your information, you will be considered “cleared to close.” Although this is certainly a reason for celebration, keep in mind that your lender may conduct a “quality control” audit on your application as late as the day before closing, so it is still crucial not to make any major life changes, such as switching jobs or purchasing a car, until you have actually closed on your property. The process may sound daunting but with the help of an experienced mortgage professional, you can move from pre-qualification to closing in as little as three weeks.