Getting pre-qualified is the first step in getting a loan. This lays out all of your financial basics for a bank or lender by providing your income, debt, and assets. The bank/lender can then give you an estimate of what amount you qualify for. This is usually a quick, costless procedure that can even be done over the phone or online. It’s important to remember that because this process is so quick and doesn’t look too deeply into your finances, the pre-qualified amount is not a guarantee.
Step 2 is becoming pre-approved for a loan. This is a much more definitive step in the approval process, and therefore takes a bit longer to complete. To get pre-approved, you’ll fill out an official mortgage application and supply the necessary documentation for the lender to be able to assess your credit history and your financial background. Some banks and lenders will charge for the application to process, which usually runs at around $300-$400. After your application goes through, you’ll receive a conditional approved loan amount which will allow you to look at homes at or below that price level. This is a bonus to a seller, because it means you are one step closer to getting an actual mortgage. This allows you to move quickly in an ever-changing, competitive housing market and makes you look more serious to sellers about purchasing a home.
Once you’ve found a home and made an offer, you’ll give your lender a copy of your purchase agreement and any other documentation they require. This underwriting process takes anywhere from a few days to a few weeks, and also includes a home appraisal to make sure that the home you’re buying is worth the price you’re spending and borrowing. The third and final step is going to be the loan commitment, which is issued by the bank when it approves you as the borrower and the house in question. Your income and credit will be checked once more to make sure you are still at the same place financially as you were when you got pre-approved.