Whether a buyer has been pre-approved or pre-qualified for a mortgage, and what exactly that means, is now part of the standard MLS contract here in the Chicago area. There are a number of choices listed on the form, from a basic pre-qualification - they talked with a loan officer - to a full approval with a credit check and an AUS (Automated Underwriting System) loan approval. The question I have is this, is a buyer really serious and ready to buy if he isn't willing to share his documentation and submit to a full pre-approval? And if they have been pre-approved, when was it done?
The market has changed a lot in the last few months. Mortgage guidelines have tightened and many companies have closed their doors for good. A pre-qualification or an older pre-approval may be worthless. Was the buyer qualified to buy with a 100% financing, no-doc loan? If he was, that isn't in the cards now. If the buyer was a sub-prime candidate, that's probably not going to fly either.
When I first talk with a potential buyer, I play a version of the old game of twenty questions. I ask them everything about their financial situation and try to probe in to find out their goals, both near term and longer, and look out for any problems that may lurk below the surface. Most of the time a pre-qualification like this is going to be accurate. But there have been times where the credit check didn't match up with what they told me, or there were debts they had forgotten to mention, or income that we couldn't use for one reason or another. All these things would affect their approval once they actually applied for a loan.
Getting pre-approved is easier than it has ever been. Most of the time we can do it over the phone with the documents sent in by fax or email, and have a true decision the same day. So why would anyone settle for anything less than a full pre-approval?
Pete Thompson is an Illinois mortgage banker who provides superior mortgage service and competitive mortgage rates in Chicago, the Chicago area and throughout Illinois. Click here for a Free copy of The Real World Home Buyer's Guide - How to Save Thousands when Buying a Home and Getting a mortgage.
7 Comments on Why get pre-qualified, when you can get pre-approved?
I laugh when I get a call from a buyer and they said they've talked with someone and were told they should have an answer within the week. I'm like, it doesn't take a week to get a pre-approval. I could see the mortgage person being busy at that exact time, but there should be a same-day call back, if not first thing the next day. How could it take a week to pull credit and put it in an automated system?
It's called lazy. Or they just back burner people because they may not make alot on that particular client. I've heard of desktop underwriting getting an approval within minutes.
In response to Donna comment. It might not take a week, but in todays market having a 10 minute conversation with a borrower and getting an instant approval are about impossible to do anymore. The exception would be a client putting 10% or more down, still has money in the bank and has scores in the mid 700's. To do a good pre-qualification or Pre-approval may take a couple days depending on the loan & document type the borrower needs. If you have a self employed borrower it is even more difficult today to pre-approve them. those Realtors who push the mortgage professional to have a fast answer are only hurting themselves and wasting their time. What you want is a well run pre-approval to know what the client can qualify for.
These days are definitely challenging when it comes to getting a buyer to the closing table. I personally do not "pre-approve/pre-qualify" anyone anymore...I get an actual approval from my underwriting department. Sometimes, that takes a couple of days or so. Even if you get a favorable AUS response, sometimes the underwriter finds data integrity errors. It's just safer to get all of the potential buyer's information and take a complete application. This eliminates most of the fallout I hear about from other loan officers.
Also, if someone isn't willing to do what it takes to get a full loan commitment, they are probably not ready to purchase yet.
Sean and Mario, you are right, the AUS is not going to be right in all cases. It is only as good as the information you enter - garbage in, garbage out. But if you ask the right questions and get the proper documentation up front, it is going to be right the VAST majority of the time. The quirky deals that don't fit squarely in the guidelines will take longer, but you need to know that early, too.
The important thing is to get the process started and know your options before making an offer.
We have to be careful before we take a property off the market. I have heard of some people getting pre approvals from their friends just to be able to make an offer on a property.
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Whether a buyer has been pre-approved or pre-qualified for a mortgage, and what exactly that means, is now part of the standard MLS contract here in the Chicago area. There are a number of choices listed on the form, from a basic pre-qualification - they talked with a loan officer - to a full approval with a credit check and an AUS (Automated Underwriting System) loan approval. The question I have is this, is a buyer really serious and ready to buy if he isn't willing to share his documentation and submit to a full pre-approval? And if they have been pre-approved, when was it done?
I laugh when I get a call from a buyer and they said they've talked with someone and were told they should have an answer within the week. I'm like, it doesn't take a week to get a pre-approval. I could see the mortgage person being busy at that exact time, but there should be a same-day call back, if not first thing the next day. How could it take a week to pull credit and put it in an automated system?