What does being Pre-Approved even mean?

If you are thinking about buying a home, chances are someone has told you, once, twice, in a million ads, that you should get pre-approved. Great. What is it? What does that mean? Why should you do it? How do you do it?

What it is: essentially, it is approval from a lender, after having reviewed your documentation, to lend you several hundred thousand dollars. We continually notice that people use the term “pre-approval” to reference a couple different paths forward.

  1. Pre-Qualification is the process of having your loan officer review your income, assets, credit report, and loan application to determine what you may qualify for. In this scenario, the loan officer is relying on their years of experience to confidently say that you will receive a loan.
  2. Pre-Approval takes the prequalification one step further, whereby the loan officer submits all of your information to their underwriters, and you receive an underwritten approval from the lender, with a list of conditions.

What it means: it means that a large part of the loan process is complete! With an underwritten loan approval, the lender has essentially signed off on you, the borrower. There may be conditions, like, another paystub, or bank statement, but the bulk of the work is done. All that is left to look at is the property.

Why should you do it: Getting pre-approved makes your offer stronger. It can help you and your lender close the loan faster. It will give you a very clear picture of what you can afford, and what your limits are.

How you do it: First, pick a loan officer you want to work with. Every lender will have a slightly different process, but all will ask you for the same thing: information to verify how much income you make, what assets you have, and what debts and liabilities you have. Then, use their tools to securely share your documentation with them. A good loan officer will work with you and your goals, and help you get approved!

Getting pre-approved can help you get one of these!