When getting a mortgage loan prior to purchasing a property, buyers will often work their way through preapproval, prequalification and then final approval. This takes time, but they can still make an offer while the financial details are being sorted out.
Preapproval is the first step, and it generally just requires the person to self-report their income, assets, debts and other liabilities. The mortgage lender can then give them a rough idea of how much financing they would qualify for, assuming that the self-reporting is accurate. A preapproval letter can be helpful to those who are beginning their search for a property or even making an offer.
Prequalification
The next step is generally prequalification, where a more in-depth study of the person’s finances will be conducted. The mortgage lender will want to see concrete evidence to back up their self-reported income, such as pay records and tax returns.
Final approval
Finally, the buyer needs to go through the underwriting process. Prequalification itself is still not a guarantee of approval. When underwriting is finished, the lender can confirm that a person has the necessary financial assets to afford the mortgage, and then the loan will be issued. Many buyers will submit a purchase offer with a contingency clause stating that, if they do not get approved for a mortgage, they are no longer obligated to purchase the property.
Navigating any type of real estate transaction can be complex, both financially and legally. For those who are going through this process, it can help to work with an experienced real estate attorney.
