What is the difference between a pre-approval and a commitment letter?
Rob Miller explains the key differences between a mortgage pre-approval and a full commitment letter — and why Realtors should know which one their buyer has.
Rob Miller, Branch Manager at MadCity Home Loans, explains the difference Realtors need to understand before they start writing offers.
What is the difference between a pre-approval and a commitment letter?
In the mortgage world, there's a hierarchy of how confident a lender is in a buyer's file. From weakest to strongest:
1. Pre-Qualification (Weakest)
Based on self-reported information. No documents verified. No hard credit pull. Worth very little in a competitive offer situation.
2. Pre-Approval
Credit pulled, income documents reviewed by a loan officer, and the file run through an automated underwriting system (Fannie Mae's DU or Freddie Mac's LP). Conditional — still requires an appraisal, title, and property-specific conditions. This is the standard starting point.
3. Underwritten Pre-Approval / TBD Approval
A human underwriter reviews the file before a property is identified. This is what we call a "TBD" (To Be Determined) approval — everything is approved except the property itself. Strong signal to listing agents that the buyer is real.
4. Commitment Letter (Strongest)
A loan commitment letter is issued after the property has been identified, the appraisal has been completed, and the underwriter has cleared all conditions except final verifications (employment, title, etc.). This means the loan is essentially approved — the deal just needs to close. Listing agents love seeing a commitment letter. It's as close to cash as a financed buyer gets.
What Realtors Should Ask
When a buyer's lender sends a pre-approval letter, ask: "Is this underwriter-reviewed, or just a loan officer review?" The answer tells you everything about how real that approval is.
Related Guide: Send buyers to our Mortgage Pre-Approval Guide so they understand what level of approval they're getting.