When Am I Really, Really Approved For My Mortgage?

That might seem such a silly question at first glance. After all, how many approvals can a lender actually provide? That’s a fair question but the fact is the approval process at a mortgage company is a path. When you’re absolutely, 100 percent approved, you’re in the “clear to close” category. Lenders are careful when issuing any sort of prequalification, preapproval or loan approval and make it clear that the loan application is fully approved only when the underwriter says so. Here are the different stages you can expect.

Prequalification. A prequalification can be issued with a 10 minute phone call with a loan officer. The loan officer will ask several questions about your income, your job, how much money you have available to close. You’ll also need to have a general idea regarding your current credit status, such as “excellent” or “average.” If you’re unsure, the loan officer can pull a credit report for you, something you really should have done prior to calling any mortgage company.

A prequalification carries very little weight as nothing has been verified. The purpose of a prequalification is to provide you with an idea of what you might qualify for, what your monthly payments could be and about how much money you’ll need at the closing table.

Preapproval. A preapproval is a prequalification that has been validated. The loan officer asks for such things as recent pay checks stubs, W2 forms and bank statements. A completed loan application is also required and the loan officer will pull an independent credit report and obtain a credit score.

Lenders will then take the application and electronically submit to an online automated underwriting system, or AUS. The AUS will issue a report within seconds regarding what needs to be included in the final loan package in order to receive a full approval. If there is anything on the report not yet provided, you’ll be asked to provide it.

Approval with Conditions.  This is a stage that can often confuse a borrower if they’ve not been made aware of the complete process. This category means an underwriter has approved the loan “on condition” that other items are provided, reviewed and approved. There are two types, “prior to document” conditions and “prior to funding” conditions.

Prior to document conditions are questions the underwriter needs answered before you loan documents will be ordered. The offending item might be a rogue deposit on a bank statement that needs clarification or other issue. Prior to funding conditions mean there is something still needed for the loan but not important enough to hold up loan papers. A common such condition might be an updated pay check stub, for instance.

Clear to Close.  Here is when you’re really, really approved. Almost. Similar to a prior to fund condition, a clear to close means there is nothing left that needs to be completed other than signing the closing papers. Everything has been cleared. You attend the closing, sign and initial where indicated and the settlement agent returns your signed documents to the lender for review.

Funding. Okay, this is your final destination. The papers have been returned to the lender who then reviews the signed documentation making sure the settlement agent followed the lender’s instructions exactly. Prior to your closing, the lender has sent your mortgage funds to an electronic vault and when the lender sends the settlement agent a “funding number” which in essence is the combination to the vault, your loan is official.