The mortgage industry, and its terminology, can be very confusing for the first-time home buyer. With terms such as escrow, closing costs, appraisal, debt-to-income ratio, and interest rate...one could become easily confused. To ease the confusion, we will be defining some of the more commonly used mortgage terms in an easy-to-understand way. Today we look at Conditional Pre-Qualification and Conditional Pre-Approval.
What's the difference?
A conditional pre-qualification is the initial step in the mortgage process. A conditional pre-qualification is a financial snapshot providing you with a general idea of the mortgage for which you may qualify. Typically, a conditional pre-qualification is an approximation based on the general financial information (debt, income, and assets) you have provided to the lender and the lender’s evaluation of this information, and may include an analysis of your credit report. At this point, a lender should be able to discuss your mortgage options with you and make recommendations on the type of mortgage that might best suit your financial situation.
A conditional pre-approval is the next, more in-depth, step in the mortgage process. A conditional pre-approval typically states that a lender has conditionally qualified you for a specific mortgage and purchase price based on the review of your income and asset documents, as well as your credit history, by an underwriter. At this point, a lender should be able to give you a contingent approval as well as a list of any documents the underwriter may still need in order to issue a clear to close for the mortgage loan. All conditional pre-approvals are contingent on nothing changing in your financial situation prior to closing.