As agents, it seems like we're always trying to impress on home buyers the importance of getting at least pre-approved before looking at houses. But some buyers just don't want to make the effort until they "find the one".
Now those buyers are two steps behind. Just getting pre-approved is no longer enough. Today's savviest agents get their buyers loan approved in advance.
Pre-Qualification, Pre-Approval & Loan Approved. What's the difference?
Getting pre-qualified for a loan is an easy process. Probably too easy. It’s just an initial evaluation of your creditworthiness. You give the lender your approximate income, the amount of your debt and any other important details from your credit history, often over the phone.
The lender then crunches these unverified numbers to determine about how much money you might be eligible to borrow. They may even give you a pre-qualification letter that any educated seller and his agent know isn't worth the paper it's written on.
However, all the information you provide during pre-qualification still has to be verified by the lender when you submit your actual loan application. There's no guarantee of a loan yet because your financial situation hasn't been verified.
Pre-approval means the information you've given the lender has been verified. It’s still a simple process, but a bit more involved than pre-qualification. You'll fill out a mortgage loan application detailing your financial information like above. You'll also need to provide supporting documentation.
The lender will examine your financial situation—your credit report, your employment history, your income—and decide what interest rate and loan amount you qualify for. Although pre-approval provides more certainty than pre-qualification, it doesn't guarantee a loan.
The Gold Standard. Loan Approved
Full loan approval doesn't take much more than a pre-approval. You've given the lender all they need. They just need to be willing to do the legwork and cover the expense required to prove the supporting documentation you provided. The lender will send out verifications to your employers, pull your tax reports directly from the IRS and similar tasks to prove your documentation. And they'll run your file through underwriting.
Wouldn't you like your offer to stand out without necessarily paying the highest price. Some sellers are looking for a quick close. (You did get fully loan approved in advance, didn't you?) And if you're not ready to move, a good agent can structure an offer that covers your costs of an early close while giving the seller the peace of mind he as a "done deal".
The number of cash buyers in the market has risen dramatically. Sellers would much rather take an offer that doesn't require a 3 week or more loan approval "contingency". When you walk in to negotiations fully loan approved, you compete with cash buyers and start out way ahead of other "pre-approved" buyers.
Yes, being loan approved can put you ahead of other offer and compete with other cash buyers, or it may save you a few bucks because you can be flexible and give the seller peace of mind. So go ahead, take the step of getting loan approved. You're going to have to go through the steps at some point. Gain the confidence being loan approved provides before you make an offer.