Pre-Qualified vs. Pre-Approval…do you know the difference?
Posted by MortgageLender at August 29th, 2017
Know the difference
Many potential borrowers still get drawn into the mistaken perception that once a lender issues them a Pre-Qualification for a mortgage, this means that they have been approved for a home loan. Most home buyers fail to make the proper distinction between being Pre-Qualified for a mortgage and being approved for one.
Just because an individual is pre-qualified for a mortgage doesn’t mean they will get one. Many prospective homebuyers who thought that their pre-qualification was enough to secure the dream home they wanted, unfortunately, have been met with utter frustration and in some cases, have forfeited their earnest money for failing to secure and arrange financing.
Help your clients Make sure you understand the difference between being Pre-Qualified and being Pre-Approved, by forwarding this brief, but interactive and fun video to them.
• Is the initial step in the mortgage approval process
• Is generally free, quick and simple
• Buyer supplies data to lender regarding their debt, income and assets.
• Upon evaluating data, lender gives an opinion of the buyer’s loan limits.
• Loan pre-qualification does not include an analysis of the buyer’s credit report or an in-depth look at the buyer’s ability to purchase a home.
• The pre-qualified buyer does not carry the same weight as a pre-approved buyer.
• Getting pre-approved is the 2nd step of mortgage qualification and is much more involved.
• Buyer completes an official mortgage application, which includes pulling a credit report
• Lender reviews required documentation including: Last two years of tax returns, corresponding W2’s/1099’s, 2 most recent pay stubs, 2 months bank statements, and 2 years of residence and employment history. We refer to this as the “2’s” – 2 + 2 + 2 = Loan Approval
• Following analysis, lender can quote a specific mortgage maximum, interest rate (subject to change), and type of loan/s the buyer qualifies for.
Advantages of being pre-approved:
• Buyer is aware of their maximum loan limits and the type of loan program they qualify for.
• Buyer is aware of down payment requirements.
• Buyer is aware of the lender limits on seller paid concessions.
• Buyer doesn’t waste time looking at properties that are beyond their qualifications.
• Enables the buyer to quickly submit an offer when the perfect property is located.
• Loan commitments are always subject to satisfactory appraisal and title
• Seller knows buyer’s offer is serious and likely to successfully close on time.
• Prevents the buyer from losing out to another competing buyer who is pre-approved.