You're ready to buy a home - what are the phases of the loan process?

Updated January 12, 2019

Getting approved for a home loan can be quick and easy if you’re properly prepared. However, many first-time buyers find themselves confused about the approval process and its stages. When you’re ready to submit an offer on a home, know the difference between prequalified and preapproved.

If you have questions, loanDepot’s licensed loan officers are always here to help in your homebuying process; call us today.

Here are the four stages of a loan approval and tips on how to expedite the process:

Prequalification

What does it mean to get prequalified? This is the first step in applying for a home loan. It’s crucial and should be done before starting your search for a new home. Prequalification involves speaking with a licensed loan officer who will give you an estimate of what you can afford based on your income and debt.

This soft credit inquiry can be done over the phone or online, is usually free and requires little documentation. It’s important to recognize that this step is only a preliminary check and does not include a review of your credit, income history or assets. It’s what you’d call a “soft yes” that essentially help borrowers understand the likelihood of qualifying for a certain loan.

Why not just become preapproved instead of prequalified?

For those borrowers looking to put solid offers on the table, a preapproval could be the best option. But if you just want to get a better idea how much you can afford without officially running your credit, a prequalification might be more suitable. The drawback of a preapproval is that it is a hard check of your credit score. This means that if you submit too many credit applications at once, it may have an adverse effect on your credit score, and thus impact your ability to secure a loan approval.

Preapproval

As explained above, while preapproval sounds similar to prequalification, the two phases are drastically different: A prequalification gives you an idea of what loan amount you’re likely to be approved for, while a preapproval runs your credit score. Once you’re ready to progress with your home loan, you must be preapproved. If you’re searching for a home to buy, you’ll want to be preapproved before submitting any offers.

During the preapproval phase, you will likely pay an application fee while providing documents such as pay stubs, bank statements and tax returns to verify your income. At this point, the lender will run your credit report.

During preapproval, your lender can tell you exactly how much of a loan you qualify for and what your interest rate will be. In some cases, you’ll be able to lock in a specific interest rate. Having your paystubs, tax returns and other documents at the ready will ensure this process goes smoothly.

Conditional approval

Once you’ve found your dream home and made an offer, it’s time to have your loan application reviewed by an underwriter. This phase is called conditional approval, meaning your loan is reviewed and approved as long as several conditions – such as a successful home appraisal and proper income verification – are met. At this point, it’s best to resolve all outstanding conditions as quickly as possible.

A conditional approval can make you a stronger candidate in competitive housing markets and bidding wars. Coming to the table with a conditional preapproval can also greatly reduce the amount of time it takes to close the loan, since most of the work is already done. This is also a plus for sellers looking to close as quickly as possible. Being proactive at this stage can help prevent unwanted delays and keep the closing on schedule.

Final approval

Congratulations, your home loan is approved. This typically means your loan is just days away from closing. At this stage, your application has been fully processed and vetted by underwriting and you have met all the requirements of obtaining a home loan. Once your loan is approved, you will need to transfer the funds for your down payment and sign closing documents.

For more information on the home purchase process, speak with a loanDepot licensed loan officer today.

Published September 30, 2016

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