What Exactly Does Pre-Approval Mean?
Learn the different levels of home buyer qualification and approvals
Often times, the terms pre-qualified, pre-approval, conditionally approved, and approved are thrown around loosely as if they all mean the same thing. Let's see if we can't break this down a little and make sure the agents and buyers are speaking the same language.
Pre-Qualified: Being "pre-qualified" simply means that based on a borrowers stated income, stated debts, stated assets, stated credit score, and stated employment status, that they could potentially be pre-approved if the stated facts are substantiated. Buyers tend to mistakenly think of this as a pre-approval.
Pre-approved: Means that the borrowers stated income, stated debts, stated assets, stated credit score, and stated employment status has been confirmed and meet the standards needed for the specific home purchase price and loan program. Depending on who you talk to the pre-approval may have been run through AUS (automated underwriting system) or the Lender/Loan Originator/Broker has enough experience to see that the loan will go through based on the documents provided by the buyer.
NOTES: Beware of a quick pre-approvals from a large national retail chain lender, as it is their job to run through as many applications as possible. If you are real estate agent, don't be afraid to ask the client if the "pre-approval" was actually run through AUS. If the answer is no then a large retail operation is likely shot-gunning the process just to put up numbers in a sales meeting. Additionally, ask if the result was Approve or Accept/Eligible or if it was a Refer Eligible. A finding of "Refer/Eligible" means that a borrower's finances and employment will require a much more scrutiny and a more rigorous underwriting process which means there is a greater likelihood that the loan will not go through.
Conditionally Approved: This means that a loan has been run through the automated underwriting system with a result of "Approve/Eligible or "Accept/Eligible", AND that and underwriter with the mortgage company making the loan, has reviewed the file and approved the loan upon certain conditions being fulfilled.
Approved/CTC: The most common term for this level is CTC or Cleared to Close. At this point, all the information including the conditions requested, have been fulfilled and the underwriter has turned the file over to the funding team to disperse funds at closing.
*As always consult with your mortgage professional before throwing out these terms to any of the parties involved in a transaction.