Eight Things That Happen After a Mortgage Pre-Approval

We’ve written about the mortgage loan approval process in the past. Today, we’ll be focusing on one specific part of that process to answer a reader’s question.

During the mortgage pre-approval process, your lender will review your financial situation to determine (A) if you are qualified for a home loan and (B) how much they are willing to lend to you.

You can think of it as a kind of pre-screening process for loan applicants.

Pre-approval usually happens on the front end of the home buying process. For some people, it’s the very first step. Which brings us back to the question at hand. What happens next?

8 Things That Happen After Pre-Approval

For simplicity, we’ve divided the rest of this guide into two parts — house hunting and mortgage processing.

On the House-Hunting Side…

First, let’s look at some of the house hunting and negotiating steps that take place after the pre-approval process has been completed.

1. Finding a real estate agent

Home buyers often get pre-approved for a loan first, before trying to find a real estate agent. Some agents are reluctant to spend a lot of time on a potential client who hasn’t been evaluated by a mortgage lender yet.

On the other hand, agents will be more enthusiastic and willing to help you if you’ve successfully cleared the mortgage pre-approval hurdle.

2. House hunting / home search

House hunting is one of the next steps in the process. This is when you actually go out and view homes to find one that meets your needs and falls within budget.

It makes sense to start your home search after mortgage pre-approval, because you’ll have a better idea of your price range. You can then narrow your search accordingly.

Looking at homes that exceed your budget is a waste of time and energy. If you get pre-approved prior to house hunting, you can avoid this scenario.

3. Making an offer

Once you’ve found a home that meets your needs, it’s time to put an offer on paper. Your real estate agent can help with this process.

The most important thing is to evaluate the seller’s asking price to make sure it’s reasonable. You can do this by looking at similar homes that have sold recently in the same area. This is what real estate agents refer to as comparable sales, or “comps.”

Related article: Mortgage first, offer second

4. Signing a purchase agreement

Once the home buyer and seller have come to an agreement on the sale price and other details of the transaction, they’ll sign a purchase agreement. This is also referred to as the real estate contract.

The purchase agreement is usually finalized after mortgage pre-approval, house hunting, and the other steps mentioned above. With a signed purchase agreement, you can then go back to your lender to complete the mortgage process.

Mortgage Steps That Follow Pre-Approval

We’ve covered some of the events that occur after mortgage pre-approval on the house hunting side of things. Now, let’s switch gears and talk about some of the mortgage-related steps that happen after you’ve been pre-approved.

1. Submitting additional documents

You probably had to submit quite a few documents to your lender during the application and pre-approval stage. Chances are, you’ll have to submit additional documents once you have found a home and made an offer.

For one thing, you’ll have to provide a signed copy of the purchase agreement, for home appraisal purposes. The lender might also request additional documents or letters of explanation during the underwriting stage (see below).

2. Mortgage underwriting

From a borrower’s standpoint, underwriting is one of the most important stages of the home loan process that happens after pre-approval.

It is the underwriter’s job to make sure the borrower, the paperwork, and even the property itself meet all required guidelines. Some guidelines are imposed by secondary authorities, like the Federal Housing Administration or Freddie Mac. Other requirements can be imposed by the lender.

The underwriter will closely review all of the paperwork and may request additional documentation or input from the borrower.

3. Resolving ‘conditions’ (in some cases)

Your mortgage lender might issue what’s known as a conditional approval. This occurs when the loan is expected to go through, but the underwriter needs additional information to sign off on it.

For example, the underwriter might ask you to provide a letter of explanation for a certain bank transaction. You would then supply the requested information to keep the process moving forward.

Alternatively, you might clear the underwriting stage with no issues whatsoever. It varies.

4. Closing the deal

From a borrower’s perspective, closing represents the final step in the mortgage loan process. In a typical home buyer scenario, the mortgage process begins with pre-approval and ends with the final closing.

When you “close” on a home loan, you will review and sign a lot of paperwork. This is also when home buyers have to pay their down payment and closing costs, usually in the form of a cashier’s check or wire transfer.

How to Keep the Process on Track

As a home buyer and borrower, it’s important to understand that your loan could still be denied even after your mortgage pre-approval.

Getting pre-approved is a helpful step in the process, and we generally recommend it. But it’s not a guarantee that your funding will go through. You still have to clear the underwriting process, as described earlier.

After you’ve been pre-approved, you can help keep the process on track by avoiding any major financial transactions that might affect your approval. The ideal scenario is to keep your financial situation as stable and “static” as possible, until you close on the home.

If you were to switch jobs, take out a personal loan, or withdraw a bunch of money from the bank, it could send your loan off the rails. At the very least, it will probably require some additional paperwork hurdles.

At this stage in the process, everyone wants the same thing. They want the deal to go through. This is true for the buyer, the seller, and the mortgage company. So it’s important for everyone to work together and keep the communication flowing.

As a borrower, you’ll want to keep in touch with your loan officer or broker throughout this process. Make sure they have all the information they need.

If you receive requests for additional information, such as a letter of explanation, address them as quickly as possible. This will help you reach the finish line and prevent unwanted delays.

Disclaimer: The mortgage process can vary from one borrower to the next for a number of reasons. Because of this, some portions of this article may not apply to your particular situation. This article is provided for educational purposes and is intended for a general audience.