What is the difference between a preapproval and a cash approval?

In today’s blog, we speak with Accept.inc’s Approval Strategy Manager and mortgage expert, Ben Maez to find out what the difference is between a traditional mortgage pre-approval and an Accept.inc cash approval.

Let’s look at the different levels of approval in a traditional mortgage process and how that compares with Accept.inc’s cash approval process.

Traditional financing step 1: Prequalification

What does a traditional mortgage prequalification look like?

The first step is simple: discuss your financial information with a loan officer.

A prequalification means you as a homebuyer have discussed your finances with a loan officer who has determined based on a quick phone call (approximately 15 minutes) and other factors such as your job history, cash in the bank and amount of financial reserves, that you are likely to qualify for a mortgage to purchase a home.

Basically, the loan officer is making an educated guess based on a short series of general questions that you will qualify for a mortgage.

How long does a prequalification take to complete?

A prequalification can happen the same day.

When does a prequalification happen?

At the very beginning of your loan application; it is the first step to securing a traditional mortgage.

Who influences how fast a prequalification takes? The buyer or the loan officer?

A prequalification moves as fast as a loan officer’s speed in setting up a call. As the buyer, you need to be available for the call and ready to provide accurate information.

Traditional financing step 2: Preapproval

What does a traditional mortgage preapproval look like?

The second step is to get preapproved. A preapproval means that a loan officer has received, reviewed, and discussed the following information with you:

1. A copy of your credit report to review your credit score and history
2. Proof of income
3. Proof of assets to verify you have the money set aside for items such as down payment and closing costs

If you submit the requested documentation immediately, a preapproval from a loan officer can happen as fast as the same day. By reviewing your income documents and paystubs, a loan officer can get a sense of how stable or consistent your income has been. This also indicates whether you are likely to earn a stable income in the future. Your bank statement and other financial accounts confirm your ability to put enough money towards a down payment and closing costs. Because the loan officer is reviewing these documents, a preapproval is a stronger level of approval than a prequalification.

How long does a preapproval take to complete?

A preapproval can take as little as 24 hours from the time requested documents are received.

When does a preapproval happen?

After you have completed your prequalification and provided preliminary financial documents.

Who influences how quickly a preapproval can be issued? The buyer or the loan officer?

The buyer and the loan officer. As a buyer, the faster you submit all your financial documents, the faster the loan officer can start reviewing. After that, it’s down to how fast the loan officer reviews your documents and lets you know if there are any additional documents they need to complete the file package that will be sent to the underwriter for review.

Traditional financing step 3: Underwriting

What is mortgage underwriting and when does it happen in the transaction for a traditional mortgage?

The final stage in traditional financing is getting underwriter approval. After you go house hunting with either a prequalification or preapproval letter and you have won an offer on a home, you will be ready to move into mortgage underwriting.

In this stage, an underwriter thoroughly evaluates the financial documents in your file that a loan officer used to pre-approve you, verifying that all information is current and accurate. When the underwriter reviews your file, they might request additional documents or verification of items. It’s important to note that a mortgage underwriter is the ultimate authority in evaluating credit worthiness. After they give their thumbs up, the underwriter can move you on to closing.

How long does underwriting take to complete?

Most lenders will tell you that from the time you turn in your documents, you can expect the underwriting portion will take 3-7 days to complete. After the initial underwriting review, there will often come a request from the underwriter for additional documents needed from you to satisfy loan conditions. When they request additional documents, this will extend your timeline for getting underwritten approval.

When does underwriting for a traditional mortgage happen?

Traditional mortgage lenders send your file to underwriting only after you have won an offer on a home and gone under contract. This means you must first apply for the loan, submit all financial documents, win an offer on a home, complete an inspection, resolve any additional negotiations with the seller and satisfy any other contingencies before your file is considered complete.

According to Ice Mortgage Technology’s Origination Insight report, traditional lenders currently need an average of fifty-one days from the time you begin your loan application to the time you close on the home.

Who influences how fast a file is sent to underwriting with a traditional lender?

The lender decides when your file is ready to be shared with underwriting.

Cash approval

What does a cash approval look like?

An Accept.inc cash approval is simply one step: full upfront underwriting. What can take traditional mortgage lenders 48 + days to process, Accept.inc can process in 72 hours.

With an Accept.inc cash approval, the mortgage underwriting stage is completed upfront before you go shopping to minimize surprises at the end of the transaction. Sellers hate last-minute surprises after they have gone under contract with a buyer. A full upfront underwrite means that you are able to shop with the power of cash, backed by a loan you have already been fully approved for.

Accept.inc’s cash approval process is designed to accelerate your approval timeline. As you begin the cash approval process you should expect to take a thorough deep dive into your finances immediately, the first day you apply. You should plan on a series of conversations with your approval specialist to assess what specific documents are needed to verify all income, assets and debt.

How long does cash approval take?

Cash approval can happen in as little as 72 hours.

When does cash approval happen?

Cash approval starts as soon as you decide to apply and finishes after all financial documents requested by the approval specialist have been sent to underwriting and your file has been underwritten. At this stage you will know the home purchase value you are approved for. If you want to submit offers on homes with a cash approval letter you should apply before you start shopping for homes.

What is the most important part of the cash approval process?

The most important piece to getting cash approved is also the most cumbersome part for you as a buyer: collecting documents for your loan application so it is ready for the underwriter to approve.

Your approval specialist will guide you step-by- step, document-by-document through what is needed for your specific financial situation.

With both traditional financing and cash approval, you should expect several rounds of requests for documents that verify your finances. Yes, that’s right: several rounds. The first round will be a general submission of standard documents. Additional rounds that follow will be more custom-tailored to the specific items in your finances that the lender has identified.

Because each loan applicant is unique, there is no set standard to how many rounds of documents you will need to submit. Remember: submitting multiple rounds of documents can happen when working with a traditional lender or Accept.inc. It’s important to note that some buyers with more complex financials, such as those who are self-employed or who have multiple streams of income or many assets such as multiple properties should be prepared to submit more documentation.

With traditional financing, lenders will give you weeks to submit your complete documentation. But cash approval is different. Accept.inc’s mortgage team is prepared to move as fast as our buyers can submit their documents. This is also where many buyers may lag in their response time. What is considered too long of a response time? Well, that depends on how fast you want to win a home. In today’s hypercompetitive market, many buyers face the challenge of homes selling within days of coming on the market. If you wait to finish your cash approval until you find a home you like, you risk missing the window for submitting an offer that is backed by cash.

Who influences how fast cash approval takes?

The buyer. Why? Because Accept.inc’s cash approval process is designed to empower buyers to fastrack their file through the same vetting process a traditional loan takes -but, in a fraction of the time.

Traditional loan preapproval or cash approval: which one is for you?

Getting approved for a home loan requires you to commit to a process and timeline whether you work with a traditional lender to get preapproved or Accept.inc to get cash approved. With cash approval you get more than just underwritten approval, you get all-cash buying power which is 4x more likely to win an offer for a home. Preapprovals tell you that you can “probably” qualify for a mortgage to buy this house- but cash approval gives you and the seller 100% certainty that the cash will be ready on closing day. To start the cash approval process with Accept.inc, just fill out this quick form.