So you found your dream house, saved your money and the seller asked for your approval letter from your lender. You realize that, even though you'll have no problem in finding a home loan, you somehow hadn't' gotten around in applying for a loan. And the seller wants your approval letter right now! What to do?

Most people simply pick up the phone and call a lender. But you've also noticed on the web that there are lenders who can give you loan approvals "instantly" -- as in 3 minutes. Should you go online for approval?

Why not? By logging onto the Internet you can find an endless array of lenders begging you to visit their site. Many offer instant loan approvals and by completing some information you can obtain your approval notice within moments after entering in your personal data. A few clicks of the mouse and, voila! Instant approval. Right?

Actually, the only thing you've been "approved" for is that your credit grading in somewhere in the ballpark. Simply entering your information on a website isn't -- by itself -- going to get you into a home.

There are certainly different definitions of such terms as "pre-qualification" and "pre-approval." And lenders are guarded when it comes to using the term "approved."

Generally, a "pre-qualification" means that after a brief interview the lender believes that when your monthly debt payments are compared to your monthly income the numbers are in line with accepted ratios. Nothing is verified by the lender, only that you have been "pre" qualified.

One could state practically anything regarding income or debt, but until the lender verifies that information, you've simply been given an opinion, estimate -- or maybe a fantasy.

A "pre-approval" in the usual case differs from a "pre-qualification." A pre-approval typically means that the lender has verified your debt ratios, checked your credit grading, and possibly reviewed income levels with paycheck stubs or last year's W-2s.

But a pre-approval is not a loan commitment. There are other things a lender wants to see before a loan can be closed -- including items which are not directly related to your credit such as a survey, title search, and other items.

Still, in the usual case, pre-approval carries a little more weight than a mere pre-qualification.

What you really want is a loan "approval" -- a final, unqualified commitment to fund your home purchase.

So what about those loan "approvals" you see advertised online. Do those online "approvals" translate into instant checks at competitive rates and terms? Sure, you can get the words "approved" on an e-mail or letterhead, but trust me, the approving lender wants you to back up everything you just typed online.

While your credit report could have been reviewed automatically and with your permission from an online site, the facts are that verification and other checks are required before a new mortgage is issued.

There is great value to pre-qualifying and pre-approving. At least you will have spoken with a lender and gotten an idea regarding what you can afford and what loan choices might be best for you.

But don't be over-sold. Read the fine print about those allegedly-instant "approvals" -- whether online or off. Ask lenders what they mean by such terms as "pre-qualify" and "pre-approval" and when you get that letter which says how much you can borrow, look at the qualifications, reservations, and exceptions.

For more articles by David Reed, please press here.

Published: April 20, 2001

Use of this article without permission is a violation of federal copyright laws.

, a veteran Mortgage Banker, successful Real Estate Consultant and author of Your Guide to VA Loans, Mortgages 101: Quick Answers to Over 250 Critical Questions About Your Home Loan, Who Says You Can't Buy a Home!, and Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You, is a former columnist and Contributing Editor with San Diego-based Mortgage Originator Magazine. Reed is President of CD Reed Mortgage Bankers, Austin, TX and is a Past President of the Austin Mortgage Bankers Association.