THE BLOG

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In a competitive market which bank approval is right for you and what is the difference between the 3? Pre-Qualified, Pre-Approved or Fully-Underwritten.

Understanding the difference between Pre-Qualified, Pre-Approved, and Fully-Underwritten mortgage approvals is essential when navigating a competitive housing market. Here's a breakdown of each term:

What it Means:
A pre-qualification is an initial estimate of how much you might be able to borrow based on basic financial information (e.g., income, debt, and credit score). It typically does not involve a deep review of your finances.

Process:

Often informal and done online or over the phone. No hard credit check.

Pros:
Fast and easy to obtain.

A good starting point to understand your budget.

Cons:
Not as credible to sellers.

No guarantee of approval since your finances haven’t been thoroughly reviewed.

What it Means:
A pre-approval is a more formal process where the lender verifies your financial information, including income, assets, and credit history. This results in a more accurate loan amount.

Process:
Requires submitting documentation like tax returns, W-2s, and bank statements.Hard credit check is conducted.

Pros:
Stronger than pre-qualification; shows you're a serious buyer. Gives sellers more confidence in your ability to close.

Cons:
Still not a full commitment from the lender; the loan is subject to additional verification during underwriting.

What it Means:
A fully-underwritten approval means the lender has reviewed and verified all your financial documents and conditionally approved your loan before you make an offer. This is the most thorough and credible level of approval.

Process:
Complete underwriting process upfront. Involves submitting all required documentation (income, credit, assets) and sometimes verifying employment.

Pros:
Most competitive in a hot market; sellers see it as nearly equivalent to cash offers.

Reduces closing time since much of the work is already done.

Cons:

Takes more time and effort upfront.

It depends on your goals and market conditions:

•  Pre-Qualification: Good for early-stage buyers exploring their budget.
•  Pre-Approval: Ideal for serious buyers in moderately competitive markets.
•  Fully-Underwritten Approval: Best for highly competitive markets or when you're up against cash buyers and want to stand out.

In a seller's market, fully-underwritten approval offers you the most leverage. However, if you're early in the process or not ready to commit, starting with a pre-approval is a solid choice. I am always happy give my opinion on lenders and send you a few different recommendations based on the type of home you're looking for. Different banks may offer different incentives as well (first time home buyer credits, grants, downpayment assistance) or maybe you need a rehab loan? Let's have a conversation so I can help guide you in the process.