Pre-Approval vs. Loan Commitment

Posted by Laine Smith on 9/27/13 10:33 AM

Topics: Home Buying

At some point in your home shopping process you will be asked if you have been “pre-approved”, a commonly misunderstood home financing term. Knowing the difference between a pre-approval and loan commitment will help you avoid surprises when you are in the process of applying for a mortgage loan.

In order to be approved for a loan, a lender must verify various aspects of your finances and of the home you are purchasing. Typically lenders begin this process with a pre-approval.

home in hand

To get a pre-approval the lender will run your credit score and compile a loan application with the information you provide regarding income, employment history, assets, etc. The lender will analyze this information and issue a decision on whether or not you are eligible for a loan. If you are qualified for a loan, the lender will issue you a pre-approval that states your qualification subject to verification of certain items, such as income and assets.

To verify your financial information, your lender will ask for various documents including tax returns, pay stubs and W-2’s. Once verification is completed, the lender can issue a loan commitment. This commitment provides information about the loan that the lender has agreed to provide to you. It indicates the amount of money being loaned, the interest rate that you are qualified for*, type of loan and period of time for which the commitment is good.

Though shopping for a home with a pre-approval is better than shopping without, a loan commitment gives you a consistent head start against other buyers. A loan commitment allows you to:

  • Present the best offer on a property. In multiple offer situations, a loan commitment shows that you are a serious buyer and are ready to purchase.
  • Have peace of mind. You already have a reliable commitment from your lender for your purchase.
  • Act quickly. Having your loan ready prior to finding a home will allow you expedite the loan process.

In today’s tough market, it is essential to stand out from other potential buyers. Stand out with a loan commitment!

* This is a qualified rate not a locked rate, they are subject to change based on the market at the time you find your home to purchase.


Thinking of purchasing a home? Our Mortgage 101 Handbook is the ultimate guide for first-time homebuyers.

Download: Mortgage 101 Handbook

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