Pre-qualified, pre-approved, underwritten: three words, three different promises

A pre-qualification is a conversation. The borrower states income, debts and assets, a system returns a number, and a letter is generated. Nothing has been verified. It takes minutes and it is worth roughly what it costs. A pre-approval is more: documents have been collected and an automated underwriting system has issued a finding. It is a real assessment of the borrower's profile, with conditions attached. Most pre-approval letters in circulation are this. An underwritten or fully approved pre-approval means a human underwriter has reviewed the income, assets and credit and signed off, with only the property-related conditions outstanding — appraisal, title, insurance. It takes longer to obtain and it is a substantially stronger offer, because the things that usually break a deal have already been examined. In a competitive situation that difference is leverage that costs nothing but time. A seller choosing between two similar offers is choosing certainty of closing. Two things to check on any letter before relying on it: whether the loan amount stated is what the borrower can actually afford at today's payment including taxes, insurance and association dues — the qualifying number and the comfortable number are frequently far apart — and the expiry, since letters go stale and credit reports have a shelf life. And one thing not to do after getting any of the three: change anything. New credit, a new job, a large unexplained deposit or a car purchase can undo an approval between the letter and the closing. This article is general information, not legal, tax or financial advice. Rules change and every deal is different — check your own case with a licensed professional. Alberto Zaltzberg — Adonait · adonait.com