We’re often asked about pre-approval vs. credit approval. In general, we suggest meeting with a mortgage broker early in the home-search process and obtain a Pre-Approval Letter. This step serves a few key purposes. First, it informs the Buyer what price level they can look at when shopping for homes. Second, it tells Sellers and Listing Brokers the Buyer is serious about purchasing and they can afford the Seller’s home. Most mortgage brokers can deliver a Pre-approval Letter very quickly with basic financial information such as personal information, income and employment information, assets and debt information.
An important extra step we recommend to our Buyer clients is to ask their mortgage broker to provide a Credit Approval. A Credit Approval is issued after the Buyer’s loan file is reviewed and approved by the lender’s underwriting team. Essentially, the Buyer is approved for the loan subject only to identifying the property to be purchased and the appraisal. The Buyer’s financing is typically the greatest risk in a purchase transaction. Depending on the nature of the Buyer’s income, employment, assets, and debts, it is common for the underwriting team to request additional information from the Buyer. In situations where the Buyer may be self-employed, relying on down payment monies that are not liquid, or when very little wiggle room exists on Credit Scores, the Underwriting team can burden the Buyer’s loan file with certain conditions that prevent Loan Approval. Once Buyers are able to get through the underwriting process, their Offer Package becomes much more competitive in the eyes of most Listing Brokers and Sellers. A big part of our job in helping our Buyer clients is providing these insights even before we begin searching for homes. And when we present Offers on behalf of our clients, our ability to sell the Offer Package, including the financing details, can sometimes tip the scale in our favor and an accepted offer for our client. If you have additional questions about the pre-approval process, please contact us.