What Is the Difference Between a Pre-Approval and a Conditional Pre-Approval?

Loan terminology can be confusing.

Loan terminology can be confusing.

Once you decide it's time to settle down and buy a house, you may find yourself surrounded by a frenzy of real estate terms that can be hard to decipher. Understanding the different type of loan “pre-approvals” can help you wade through the muck and mire. Knowing where you stand can also help you make savvy financial moves and get the best deal on your new abode.

Loan Application Process

There are a lot of different ways you can go about researching home loans. If you work with a licensed real estate agent, he should be able to refer you to lending organizations or loan programs that fit your unique criteria. You can also check out different lending organizations or even your own financial institute or bank to get an idea about loan approval conditions and interest rates. After you narrow the focus and decide what direction to go with a loan, you'll enter the pre-approval stage of the loan approval process.

Pre-Approval

A lot of real estate agents will tell you to get a letter of pre-approval before you start looking at homes. The idea is that if you find a place you absolutely love, telling the seller that you're pre-approved for a loan gives you a little bit of an edge over buyers who are not pre-approved. It also shows you're serious about what you're doing. If a bank or mortgage lender tells you you're pre-approved, they’ve basically pulled your credit report to make sure you have no major dings, and that you have enough stated income to qualify for the property you’re thinking about buying.

Conditional Approval

Conditional approval is a lot stronger position to be in than just basic pre-approval. Before giving you a conditional approval, a lender will go more in-depth with your financial picture and look at your actual earning statements, evaluate past tax returns, and make sure you meet the all of the conditions of the type of loan you're applying for. A conditional loan approval is not the final word in the loan application process, but it gives you a lot more buying power.

Final Approval

Nothing is set in stone until you get final loan approval. A lot of things can happen between getting pre-approval, conditional approval and final approval. You'll still have to do inspections and appraisals and demonstrate you have funds necessary for a down payment and closing costs. Fluctuations in the market can still derail buying a house at the last minute, even if you have conditional approval. Once final approval is in place, you’re good to go and can breathe a sigh of relief.

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