Approved and preapproved mortgages are terms that are frequently misunderstood. Knowledge of the difference of the two can help a potential homeowner in their quest for a home.

A preapproved mortgage is the application review and pre-approval for a mortgage prior to home selection. It is not a binding contract but simply an indication that the mortgage company is willing to lend the money to borrower contingent on verification of all items.

An approved mortgage is a binding contract between the lender and the borrower. An approval is ready only after all of the items have been verified on the borrower and the purchase property.

Potential lenders view a loan application and obtain a credit report. This information is viewed by the lender and the borrower can be qualified for a pre-approval. The pre-approval is contingent upon verification of certain items within the application. A credit report at this stage is the only verified information. This preapproval letter is generally good for 60-90 days. After this time, the lender may need to reconfirm the application and reissue the letter.

Be careful with a pre-approval because many of these pre-approvals are contingent on conditions that the borrower could not meet. The end result of this could be a rejection on the loan or a higher interest rate to get the loan. A good mortgage company and loan officer will carefully do their homework to prevent this from happening.

Consumers are advised to watch lenders that market the phrase “loan approval in 24 hours.”

Most lenders should be able to provide a preapproval in 48 hours.

Preapprovals are the first step to obtain a mortgage. But remember it is an approval that will get a homeowner on his way to home ownership.

This is the final approval for mortgage terms and property to be purchased. All facts on the mortgage application have been verified and approved. Income, employment history and assets are only a few of the criteria to be verified.

The information for criteria changes from lender to lender. Listed below are additional criteria that must be verified for final loan approval.

Depending on the type of loan required credit scores can vary. A minimum of 620 is required for most loans. If the credit score is below that, a subprime loan may be the only option.

There are line items on the report that may require review or a waiting period. For example, with a bankruptcy or foreclosure line item, there is a required wait period. Liens and judgments may have to be paid off before a loan can be approved.

This is a calculation of pretax income in percentage to the debts of a borrower within a month. A 36% ratio is normally acceptable but loan requirements vary per mortgage type.

With the exception of a VA or rural loan, there is a required down payment that must be made to approve a loan.

Depending on the type of loan, there is a list of required property conditions that are acceptable. Broken windows may need to be repaired before final loan approval for an example. Also the property’s appraisal must be at or higher than the loan value.

The difference of a preapproved mortgage and an approved mortgage are night and day. There are more steps to a final approval, but may be worth the effort for homeownership.