Which option describes a formal process that can only be done by a lender involving an actual loan application?

The choice of pre-approval accurately identifies a formal process that involves a lender reviewing an actual loan application. During pre-approval, a borrower submits a formal application along with supporting documentation, such as income verification and credit history. The lender analyzes this information to determine the borrower’s eligibility for a specific loan amount, essentially assessing the risk involved in extending credit.

Pre-approval differs from pre-qualification, which is primarily an informal assessment based on self-reported financial information. Loan processing comes after the application stage and involves gathering and verifying all the necessary documentation but does not itself involve any decision-making based on an actual application. Mortgage underwriting follows pre-approval and involves a deeper analysis to finalize the loan, ensuring that all risks are assessed before lender funding, but it is not the initial application process. Therefore, pre-approval distinctly corresponds to a formal lender-driven process that includes the submission of an actual loan application.