Housing Counselor Certification (HUD) Practice Exam

If a client has received a loan commitment based on a complete loan application review, in what stage of the lending process is the client?

1. Pre-underwriting

2. Pre-approval

3. Final approval

4. Loan servicing

The correct answer is: Pre-approval

In the lending process, receiving a loan commitment based on a complete loan application review indicates that the client is at the pre-approval stage. During this phase, the lender has evaluated the client's financial information, including credit history, income, and debt levels, and has determined that the client is eligible for a loan pending final underwriting and conditions. Pre-approval is a crucial step because it gives the client a better understanding of how much they can borrow, allowing them to shop for homes with confidence. The lender's commitment at this stage is more than just a pre-qualification, as it involves a thorough analysis of the client's financial picture. Subsequent steps would typically include the underwriting process, where thorough investigations are conducted and conditions are set before moving to the final approval stage, which occurs after a property is identified. The other options represent different phases: pre-underwriting involves initial screenings before detailed assessment, final approval takes place after all conditions are met and the loan is ready for closing, and loan servicing pertains to the management of the loan after it has been funded. Thus, pre-approval is the appropriate designation for the client's situation.