Your First Step to Buying a Home: Understanding Prequalification vs. Preapproval vs. Fully Underwritten Loans
Before you fall in love with a home, there’s one crucial step every buyer should take: getting your financing in order. It not only strengthens your offer but also protects your deposit—and your peace of mind.
Many buyers don’t realize that of the few escrows that fall through, most cancel due to financing issues. That’s why it's essential to understand the key differences between pre-qualification, pre-approval, and full loan underwriting—and what each means for your home-buying journey.
Prequalification: A Basic Estimate
Think of this as a first glance at your financial picture.
Based on self-reported income and debts
No credit check
No documents verified
Lenders may give you a rough estimate of what you could afford
Bottom line: This is a loose estimate—not something you want to rely on when submitting an offer.
Preapproval: A Step Further
With preapproval, you officially submit a loan application and share your financial details.
Income, assets, and debts reviewed
Sometimes includes a credit check
Gives a more accurate estimate of what you can borrow
However, your loan has not yet been fully reviewed by an underwriter.
Fully Underwritten Pre-approval: The Gold Standard
This is the strongest position you can be in as a buyer—and often the difference between winning and losing the house you love.
Your credit, income, assets, and employment have been fully verified
The loan is reviewed by an underwriter
You can often waive the loan contingency, making your offer more competitive
This is the level of approval sellers and listing agents love to see. It shows you're serious, ready, and well-qualified.
Why This Matters in Your Offer
When writing an offer using the Residential Purchase Agreement (RPA), your agent selects one of three options under section 6B regarding your loan status. The stronger your financing, the stronger your offer.
But here’s the risk:
If you haven’t been fully underwritten and choose to waive your loan contingency—and the loan falls through—you could lose your earnest money deposit (usually around 3% of the purchase price). That’s tens of thousands of dollars at stake.
Final Takeaway
Before you start touring homes, talk to a trusted lender and get fully underwritten. It’s the smartest move you can make to protect yourself, strengthen your offer, and move confidently toward homeownership.
Need a trusted lender or want help understanding your next steps as a buyer? Let’s connect.
