Guides · Buying
Pre-qualified, pre-approved or fully underwritten: which one a Seattle offer needs
A pre-qualification is an estimate built on what you tell a lender. A pre-approval usually adds a credit check and a finding from Fannie Mae's or Freddie Mac's automated underwriting system, based on numbers that may not have been verified yet. A full underwrite, often called a TBD approval, means an underwriter has checked your income, assets and credit before you choose a house, and it is the level that can justify shortening or waiving the financing contingency on a competitive Seattle offer. Mortgage credit checks within 45 days count as one inquiry, and under Fannie Mae's rules the documents behind any approval must be no more than four months old when you sign the loan.
What a pre-approval is#
The difference between pre-qualified, pre-approved and underwritten#
Lenders do not use these words consistently, and the CFPB tells buyers not to worry about which one is on the letter, because it says little about what the lender actually did. What matters is what was checked, and by whom.
| Level | Typical time |
|---|---|
| Pre-qualificationBuilt on what you tell the lender, with or without a credit check. An estimate, not a decision. | Same day |
| Pre-approvalUsually a credit report plus an automated underwriting finding, based on the numbers entered. No underwriter has reviewed the file. | 1 to 2 days |
| Full underwrite, or TBD approvalAn underwriter has checked your credit, income and assets against your documents and approved you with conditions. What is left is mostly the house. | About a week |
The times are my rough estimates, and they vary by lender.
Federal mortgage-reporting rules give a useful yardstick. Under Regulation C, a preapproval program issues a written commitment, for a set amount and a set period, after a comprehensive review of your creditworthiness that includes verifying your income and resources. The only conditions allowed are finding a suitable property, no material change in your finances, and routine items such as a title insurance binder. Whatever a lender calls its letter, that describes a full underwrite, not a letter built on unverified numbers.
Sources
- What's the difference between a prequalification letter and a preapproval letter?, Consumer Financial Protection Bureau
- Regulation C, 12 CFR 1003.2(b)(2), preapproval programs, Consumer Financial Protection Bureau
- Official interpretation of 12 CFR 1003.2(b), requests for preapproval, Consumer Financial Protection Bureau
Not sure how this applies to the house you're looking at?
Talk it through before you writeWhat a pre-approval checks, and what it does not#
A typical pre-approval has two parts. The lender pulls your credit report, then runs your application through an automated underwriting system, usually Fannie Mae's Desktop Underwriter or Freddie Mac's Loan Product Advisor, and gets back a finding.
That finding is only as good as what was typed in. Fannie Mae requires the lender to check the figures against your documents and to resubmit the loan if they have changed beyond set tolerances. Until that happens, a pre-approval really says: if what you told us is right, you qualify.
Some lenders collect pay stubs and bank statements at this stage, and some take your word for the numbers. Either way, unless an underwriter has reviewed the file, the decision is still the computer's.
The system can also run without a house. Fannie Mae's instructions for that case say to enter only the state, or to type TBD in the street field if the lender's software insists, and the system will not say what appraisal it wants until a full address goes in. So no approval given before you have an address tells you anything about the house.
Sources
- Desktop Underwriter and Desktop Originator, Fannie Mae
- Loan Product Advisor, Freddie Mac
- B3-2-01, General Information on DU, Fannie Mae Selling Guide
- B3-2-10, Accuracy of DU Data, DU Tolerances, and Errors in the Credit Report, Fannie Mae Selling Guide
- DU job aid: entering the subject property address, Fannie Mae
What a full underwrite, or TBD approval, adds#
A full underwrite puts the same file in front of a person before you have a house. You send your documents up front, an underwriter reviews them against your credit, and the lender issues an approval with conditions. Lenders call it a fully underwritten pre-approval, or a TBD approval, because the property is still to be determined.
Federal rules allow that order. A lender may review documents you volunteer before it owes you a Loan Estimate, and you have not made an application under the disclosure rules until the lender has six things: your name, income and Social Security number, the property address, an estimate of its value and the loan amount. Without an address there is no application yet, so no Loan Estimate is due.
Checked before you find the house
- Your credit, read by an underwriter rather than only scored.
- Your income and your job, from pay stubs, W-2s or tax returns.
- Your assets: the down payment, closing costs and any reserves, and where large deposits came from.
- Your debts, and how they compare with your income.
Still open until closing
- The appraisal, which needs a house.
- Title, and the rest of the property paperwork.
- The building, if it is a condo. The lender reviews the project on top of reviewing you. What that involves, and how it works with FHA.
- Anything that changes in your job, your debts or your bank accounts.
- Your rate, until you lock it.
So I would not call a full underwrite a guarantee, whatever the letter says. It settles the questions about you, not the ones about the house, and it holds only while your finances stay as they were. Ask the lender for the list of conditions that remain: on a strong approval, nearly all of them are about the property.
Sources
- 12 CFR 1026.2(a)(3), definition of application, with official interpretation, Consumer Financial Protection Bureau
- TILA-RESPA integrated disclosure rule, small entity compliance guide, section 6.11, Consumer Financial Protection Bureau
- B4-2.1-01, General Information on Project Standards, Fannie Mae Selling Guide
- What's a lock-in or a rate lock on a mortgage?, Consumer Financial Protection Bureau
Which level wins which Seattle house#
A house that has been sitting. If it has been on the market for a few weeks with no offer review date, a solid pre-approval is usually enough. Keep your financing contingency, and you may even have room to ask for a seller credit.
A house with a review date. Competitive Seattle listings often go live midweek and review offers the following Monday or Tuesday, about five days later. A pre-approval fits in that window. A full underwrite, at about a week, does not, unless it was done before you found the house. That is the main reason I suggest getting underwritten early, even while you are only looking.
Expect a phone call. When a seller has several offers, the listing broker will often call each buyer's lender. The questions are short: has an underwriter reviewed the file, what conditions are left, and can you close on the date in the offer? The best answer a lender can give is that everything except the property is approved.
The financing contingency. It lets you end the deal and get your earnest money back if the loan falls through, on the terms and deadline your financing addendum sets. A full underwrite is what can let you shorten that deadline or waive the contingency, and when a house has several offers, that can matter as much as price.
Be clear about the cost. Once the contingency is waived or has expired, a loan that fails is your problem, whether the cause is your job, your finances or a lender that cannot close on time. If the appraisal matters to your loan, know how your offer handles a low one before you sign.
The money at stake is usually your earnest money: on an $850,000 house, $25,500 at 3% or $42,500 at 5%. Where the contract makes the deposit the seller's only remedy, Washington caps what the seller can keep at 5% of the price. What is at stake, and when you get it back.
My view: waive financing only when an underwriter has signed off, the conditions left are about the house, and you could live with losing the deposit. Short of that, shortening the contingency is usually a better trade than waiving it.
Sources
- RCW 64.04.005, earnest money and liquidated damages, Washington State Legislature
How long a pre-approval lasts#
The letter lasts as long as the lender says it does. The documents behind it have a harder limit. Fannie Mae requires credit documents, meaning credit reports and employment, income and asset documentation, to be no more than four months old on the note date, the date on the loan you sign at closing. Older ones have to be updated.
So a credit report pulled on 10 January is too old for a loan signed after 10 May, and so is a bank statement dated that day. FHA loans have their own version of the rule: HUD allows 120 days, counted to the day the loan funds.
In practice a letter is a snapshot. Before a competitive offer, I would ask the lender to reissue it at your offer price and confirm that nothing behind it has gone stale. One letter at the number you are offering is enough; a letter for far more tells the seller how much further you could go.
Sources
- B1-1-03, Allowable Age of Credit Documents and Federal Income Tax Returns, Fannie Mae Selling Guide
- Single Family Housing Policy Handbook 4000.1, maximum age of mortgage documents, U.S. Department of Housing and Urban Development
Does getting pre-approved hurt your credit?#
A little, and less than most people fear. A lender's credit check is usually recorded as a hard inquiry, which the CFPB says typically has a small negative effect on your scores. A soft inquiry, such as checking your own credit, has none. Some pre-qualifications involve no credit check at all, so ask which kind a lender will run.
Shopping around does not multiply the effect. Within a 45-day window, mortgage credit checks are recorded as a single inquiry, however many lenders you talk to. If the first lender pulls your credit on 1 March, the others have until mid-April.
Before any of them pulls, get your own reports free at annualcreditreport.com and have anything wrong corrected. The CFPB makes the same point about timing: getting pre-approved earlier shows up credit problems while there is still time to fix them.
Sources
- What happens when a mortgage lender checks my credit?, Consumer Financial Protection Bureau
- What is a credit inquiry?, Consumer Financial Protection Bureau
- What's the difference between a prequalification letter and a preapproval letter?, Consumer Financial Protection Bureau
What can undo an approval before closing#
An approval describes your finances on the day it was issued. Change them and the lender has to look again, and the answer can change.
New debt. Say your household earns $15,000 a month and your debt-to-income ratio was 40% at approval. A $600 car payment adds four points. Under Fannie Mae's rules, new debt that takes the ratio past 45%, or raises it by three points or more, sends the file back through Desktop Underwriter. The CFPB's advice is to avoid applying for other credit right before and during the mortgage process.
A new job, or no job. Fannie Mae has the lender confirm your employment again as late as possible, normally within 10 business days of the note date, or 120 days if you are self-employed, and any change in your employment has to be fully reevaluated.
Money that moves. If you need a deposit for the purchase and it is more than half your monthly qualifying income, the lender has to document where it came from. On $15,000 a month, that is any single deposit over $7,500. Move gift money or stock sale proceeds early, and keep the paper trail.
A missed payment. It can lower your score, and the CFPB lists a score change among the reasons even a locked rate can move.
My advice: from the first application to the keys, change nothing about your money without asking your lender first.
Sources
- B3-2-10, Accuracy of DU Data, DU Tolerances, and Errors in the Credit Report, Fannie Mae Selling Guide
- B3-3.1-04, Verbal Verification of Employment, Fannie Mae Selling Guide
- B3-4.2-02, Depository Accounts, Fannie Mae Selling Guide
- What happens when a mortgage lender checks my credit?, Consumer Financial Protection Bureau
- What's a lock-in or a rate lock on a mortgage?, Consumer Financial Protection Bureau
How to get pre-approved, and which level to get when#
While you are browsing, a pre-qualification or an honest budget is enough. Its job is to tell you which price range to look in, and how much you really need down.
Once you are touring seriously, get pre-approved. Pull your own credit reports first. Gather recent pay stubs, W-2s or tax returns, and statements for the accounts your down payment will come from, with the paper trail for any gift or investment sale. Then talk to two or three lenders inside the same 45-day window, and ask each one whether it will underwrite you before you have a house.
Before you write on competitive houses, be fully underwritten. It takes about a week, so start while you are still touring.
When you go under contract, send your lender the signed purchase agreement that day. With the address, the application is complete, and the lender must deliver or mail your Loan Estimate, the first standard statement of your closing costs, within three business days. Any written estimate of your rate or costs that a lender gives you before then must say at the top that your actual rate, payment and costs could be higher.
Sources
- 12 CFR 1026.19(e), when the Loan Estimate is due, and written estimates given before it, Consumer Financial Protection Bureau
- Loan Estimate explainer, Consumer Financial Protection Bureau
Common questions#
What is the difference between prequalified and preapproved?
A pre-qualification is an estimate based on what you tell a lender, sometimes without a credit check. A pre-approval adds a credit check and usually an automated underwriting finding. Lenders use the two words inconsistently, so ask what was actually verified and whether an underwriter reviewed it.
What is a fully underwritten pre-approval, or TBD approval?
An approval issued after an underwriter has reviewed your credit, income and assets, before you have chosen a house. TBD means the property is still to be determined. The conditions left are mostly about the house: the appraisal, title and, for a condo, the building.
How long does a pre-approval last?
As long as the lender says, usually shown as an expiration date on the letter. Behind it, Fannie Mae requires credit documents, including the credit report, pay stubs and bank statements, to be no more than four months old when you sign the loan, so an older approval needs fresh documents.
Does getting pre-approved hurt your credit?
Usually only slightly. A lender's credit check is normally a hard inquiry, which typically has a small negative effect on your scores. Mortgage credit checks within a 45-day window are recorded as a single inquiry, so comparing several lenders inside that window costs no more than one.
How do I get pre-approved for a mortgage?
Check your own credit reports, gather recent pay stubs, W-2s or tax returns and bank statements, then apply with two or three lenders within the same 45-day window. Ask each one whether an underwriter will review your file before you find a house.
What should a pre-approval letter say?
The lender's name and contact details, the loan type and amount, the date it expires, and ideally that an underwriter has reviewed your file. For an offer, have it issued at your offer price rather than your maximum. If you need a different amount, ask the lender to reissue it rather than editing it yourself.
Can I waive the financing contingency with just a pre-approval?
You can, but the risk is real. If the loan fails after the contingency is gone, your earnest money is exposed, and Washington caps what a seller can keep at 5% of the price only where the deposit is the seller's sole remedy. A full underwrite with only property conditions left is the level I would want first, and even then the risk is not zero.
Related guides
- What buying in Seattle actually costs: the Seattle buyer's guide
- Assumable mortgages: when taking over the seller's rate actually works
- Closing costs in Washington: who pays what, and how much it comes to
- Earnest money in Washington: how much, where it goes, and when you lose it
