Lynn B. Friedman - Atlanta Homes ODAT Realty: Are you pre-approved or just pre-qualified?

Are you pre-approved or just pre-qualified?

Dear Readers,

John Meussner, from Costa Mesa, CA, carefully explains the differences between PRE-APPROVAL and PRE-QUALIFICATION. Buyers should be sure to apply for a Mortgage before they start looking at homes to purchase.

 John, an APPROVED Mortgage Lender in several states, teaches in every post he writes. John's posts are a great way to understand mortgage issues. Check out his Blog for more interesting reading.


Have a successful day -
Lynn

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Julie Beaty   Rodney Mason
Fidelity Bank   Prospect Mortgage
Senior Mortgage Banker   Senior Loan Officer
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Are you pre-approved or just pre-qualified?

 

 

What's the difference?

 

     The terms pre-approval and pre-qualification are often used interchangeably.  To me, there are 2 distinct definitions, but only 1 way of doing things right.

 

Commonly used (and practiced) definitions:

 

Pre-qualification - An assumption that mortgage financing can be obtained through a conversation with a consumer about income, assets, & credit.  Many loan officers don't make it past this step when issuing a pre-approval letter.

 

Pre-approval - A preliminary approval based on a completed loan application & analysis of required income, asset, and credit documents, as well as any required explanation for potential financing hurdles.  Automated underwriting is completed using proper calculations.

 

     In today's market, it is imperative that you have a full pre-approval.  If your loan officer isn't asking for financial documents to put together a pre-approval, you need a new loan officer.

 

     As your mortgage banker, I need your income & asset documents, and we need to have a discussion about anything out of the ordinary so I can be sure that if your offer gets accepted, we'll have financing ready at settlement.

 

     Many loan officers don't perform a full pre-approval for various reasons - it takes too long, they're lazy, clients don't want to send in documents, etc, etc, the list goes on.  There's no good reason to not do a full pre-approval for every applicant.

 

Here's why you need a pre-approval:

 

- Income isn't an exact science.  Even for full time, salaried, W-2 employees, there can be many variables.  401K loans, child support/alimony, garnished wages, inconsistent bonus/commission structure, Social Security for children turning 18, etc.  So much can adversely affect income that a simple pre-qualification can miss.  I need documentation to analyze your application the same way an underwriter will.

 

- Your actual income & your qualifying income may be very different.  Especially for self-employed borrowers, write-offs and other deductions are analyzed and may be removed from qualifying income.  When your loan officer does a pre-qualification, you tell them your total income, but when your loan officer does a pre-approval, we see your tax returns and determine  qualifying income the same way an underwriter would.  Pre-approval prevents unpleasant surprises.

 

- You don't like getting tons of conditions and having to send in conditions piece-mail throughout the loan process.  With a pre-approval, we'll have your full credit report, and your full income & asset statements - we can give you the heads up on any explanations or paper trails you'll need to put together in advance, so your loan process is streamlined and headache-free.

 

Here's why I need a pre-approval:

 

- I don't want to waste anyone's time.  A faulty 'pre-qualification' gets your hopes up, makes your Realtor do unnecessary work, costs title companies money, and sets a seller back.  Nobody wins & relationships are damaged all around.  A little extra work & documentation up front makes  life easier in the long run.  Getting to settlement with no headaches, stress, or delays is priceless.

 

Why does a simple pre-qualification exist?

     A good pre-approval takes time.  A pre-qualification is a quick way to determine if a pre-approval is necessary.  If a quick interview or credit pull reveals information that would prevent a loan approval, it's easy to address immediately. 

 

How can you help?

     When applying for a loan, have the following documents ready to go (preferably in electronic format for the sake of expediency):

- Previous 2 years W-2 forms and most recent 30 days' paystubs

- Tax returns, all schedules (If self-employed, using bonus/commission income, or if you own multiple properties)

- Award letters for any pension, social security, disability

- Asset statements (all pages) for the accounts being used in your loan transaction

Keys

 

A good pre-approval done by a professional mortgage banker can be the difference between getting the keys to the home of your dreams, or having your dreams shattered.  So are you pre-approved, or just pre-qualified?

 

 

 

photo by Liz West

John Meussner

NMLS# 138061

Visit My Website!

 

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Comment balloon 6 commentsLynn B. Friedman • August 27 2015 08:10PM

Comments

Another great re-post Lynn B. Friedman and a very nice shout out to your two preferred mortgage consultants.

Posted by Nancy Laswick, Your REALTOR® For The Valley Of The Sun (United Real Estate) about 3 years ago

Lynn nice re-blog as far as I am concerned a Pre-qual is a waste of paper and cutting down an unnecessary tree  for it.... Pre-Approval is assurance of getting the property, Endre

Posted by Endre Barath, Jr., Realtor - Los Angeles Home Sales 310.486.1002 (Berkshire Hathaway HomeServices) about 3 years ago

Lynn, It's become far to acceptable calling a pre approval letter when in fact what is actually provided is a pre qualification letter...and basically not worth the paper it's printed on.

Posted by Nick T Pappas, Madison & Huntsville Alabama Real Estate Resource (Assoc. Broker/Broker ABR, CRS, SFR, e-Pro, @Homes Realty Group, @HomesBirmingham & Providence Property Mgmnt, LLC Huntsville AL) about 3 years ago

Nancy Laswick 
Thanks - it is impossible for each of us to spot all the gems posted. I love the re-Blog option.

Endre Barath, Jr.
You and I and Nick have the same opinion - not worth the paper it is on!

Thanks to both of you for stopping by,
Lynn

Posted by Lynn B. Friedman, Concierge Service for Our Atlanta Sellers & Buyers (Atlanta Homes ODAT Realty Call/Text 404-939-2727 Buckhead - Midtown - Westside -- and more ...) about 3 years ago

If I don't have a preapproval in my email, I won't even make appointments to show homes. I refuse to waste my time. ( I could be blogging )

Posted by Barbara-Jo Roberts Berberi, MA, PSA, TRC - Greater Clearwater Florida Residential Real Estate Professional, Palm Harbor, Dunedin, Clearwater, Safety Harbor (Charles Rutenberg Realty) about 3 years ago

That whole preapproval and prequalifying wording is very confusing as your wording things to create meaning.

Posted by Laura Cerrano, Certified Feng Shui Expert, Speaker & Researcher (Feng Shui Manhattan Long Island) about 3 years ago

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