You are now so close you can taste it. You’ve past the inspections, cleared the appraisal and you’re in the home stretch. It’s at this point you hear that your lender is almost ready to close but not quite because they are waiting for final loan approval.
Wait…final loan approval? I thought my loan was already approved? Let me explain the three steps of the loan approval process.
Pre: Qualification Phase:
At the beginning of the process most buyers get a pre-qualification, that just means they filled out an application, had their credit pulled and provided some income and asset documentation. The lender then then ran your numbers through what is called a desktop underwriting system, which is basically just a formula that tells him or her if you’re likely to be approved based on your income, assets and credit.
Conditional Loan Approval Phase:
Once you get your appraisal completed and collect all the additional paperwork the lender has requested your loan is ready to be submitted to underwriting for approval. Underwriting is the department that actually reviews your file, checks it to make sure it’s perfect, and then approves the loan. Typically when they approve your loan the first time they provide a “conditional” loan approval. This means you have approval but it’s conditional upon you taking care of x, y and z items. These items are usually small but can cause delays if this conditional approval isn’t received early enough in the process. An example of a condition could be the underwriter thinks the appraiser made a mistake and it needs to be corrected. Your lender would then need to go back to the appraiser, get it corrected and resubmit the corrected info to the underwriter. (Quick tip: On almost every deal the lender will come back to you several times and ask for more info. Try to stay focused on what you control, which is getting them the documents they need as quickly as possible to keep the process rolling.)
“Clear to close” Full Loan Approval Phase:
Once you have all conditions of your conditional loan approval cleared you have what is called a “clear to close”. That means you have final loan approval and the loan is fully completed! Getting to this point is a big milestone and as your agent this is when I breathe a sigh of relief. Not matter how strong the buyer there can always be surprise loan issues.
So now that you see all three phases you can better understand why getting your full pre-approval up-front can really reduce your stress! Rather than waiting till about a week before closing to get your “clear to close” you could have it several weeks before closing. All the pre-qualification and conditional loan approval phases could be done before you even find a home! That way when you do find the home all that has to happen is the lender has to get an appraisal and review the title work for that specific property. Quick and easy!