These two terms sound similar, but there is a world of difference between them. Many buyers get confused on what exactly this difference is, and it is this mistaken notion that often leads to disaster when a borrower believes they have been “Pre-Approved” for a mortgage when in fact they have not.
Preparation is the single most important step you can take to ensure a smooth financing process. Unfortunately, confusion between these two terms leads many borrowers into believing they are prepared and ready to buy, when in actuality they are not.
According to Ellie Mae’s Origination Insight Report for Sept 2016, less than 75% of all loan applications close. We believe a large portion of these are a result of borrowers that either weren’t or were improperly Pre-Approved.
So what’s the difference?
See below for a detailed description of the Pre-Qualification Vs. Pre-Approval process.
A mortgage Pre-Qualification is a fairly simple overview that a borrower has with a mortgage agent or lender in which they provide some basic information regarding their overall financial picture, including, debt, credit, income and assets. With this information, the lender or mortgage agent then tells you approximately what loan you would qualify for and provides you with a “pre-qualification” letter.
It is typically done with a conversation over the phone or internet and there is usually no cost involved and no or very little documentation is provided.
A Pre-Qualification is useful as a conversation point where you familiarize yourself with different loan products and programs, and as a means to give you a general idea of what you might qualify for.
The problem with a Pre-Qualification is that it is based off of information verbally provided and is not actually reviewed by an Underwriter. Therefore the numbers used for income/asset/debt and credit calculation & analysis are not the same numbers that will be used to approve your loan.
To make matters worse, many mortgage agents, lenders, and loan officers provide flowery “Pre-Qualification” Letters that look and read as if the borrower has been underwritten and fully pre-approved. Unsuspecting realtors and sellers then accept these letters as proof of creditworthiness when reviewing and accepting offers.
What then often happens is that as the loan goes through underwriting, and the information is reviewed for conformity to Underwriting guidelines, the numbers change and the loan is denied. This leaves the borrower scrambling to either restructure the loan or withdrawal the offer after time and money has been spent on an appraisal and inspection and a bitter taste is left in everybody’s mouth.
At Select Home Lening we feel that Pre-Qualifications are worthless. Our licensed, professional Mortgage Originators offer COMPLETE & COMPREHENSIVE PRE-APPROVALS!
Don’t make this common mistake! GET PRE-APPROVED NOT PRE-QUALIFIED!
A Mortgage Pre-Approval is a much more robust review of your credit worthiness than a Pre-Qualification. A proper Pre-Approval involves:
Providing this information at the beginning of the process, and having it professionally reviewed prior to making your offer will help avoid the dangers and frustrations that people that get pre-qualified encounter.
1. Accurately Determine What Loan Type You Qualify For
FHA, VA, Conventional programs have different rates and costs. Knowing which type of loan you qualify for will help you better understand what your monthly payment and closing costs will be.
2. Accurately Determine How Much Loan Amount You Qualify For
3. Accurately Determine What Your Monthly Payment and Closing Costs Will Be
4. Accurately Determine How Much Time You Need to Get the Financing Approved
5. Give Yourself Time to Fix Problems Before You Are Under Contract
A thorough Pre-Approval will identify potential problems with your application. Maybe a higher credit score would get you a better rate, or waiting 2 months for your next raise will allow you to qualify for more house, or paying down debt will put you in a better position.
Get Pre-Approved and give yourself time to work on the items to strengthen your application!
Get Taken Seriously By Agents & Submit Stronger Offers!
Buyer’s Agents
Coming to the table with fully Pre-Approved will get Realtor’s attention. Knowing that you have done your home-work, prepared, and have a strong Mortgage Banker behind you will get Realtors to take you more seriously and make them more willing to show you properties and recognize you as a “serious buyer”.
Seller’s Agents
When you get to the point of submitting an offer, the Seller’s Agent will favor your offer over competing offers not Pre-Approved. Helping you beat out your competition for the house & price you want!
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