What New Homebuyers MUST Know About Getting Pre-APPROVED in 2010 –

Mortgage and Lending with NEXA Mortgage LLC an Equal Housing Lender NMLS # 1660690 NMLS 274839

Kim & Bill were ready to find their first home.  After making a few quick phone calls, they received an informal pre-qualification to go ahead shop for homes. Their imagination had been working overtime and the picture of their first home was clear in their mind. They could imagine the perfect neighborhood, the most darling little house with the greatest backyard; their new home everything they ever wanted. They invested a couple hundred hours finding their little treasure, spent several hundred dollars on fees and property inspections, took a deep breath, and placed an offer. They had their heart is so set on the home that they began telling their friends the new address, and set a date for their house warming party.

And then the bank calls with this little tidbit of information - We are sorry but your mortgage application has been denied!!!

Kim & Bill could have saved themselves from this heartache if they would have been formally PRE-APPROVED. It is so important to understand the difference between a pre-qualification and a pre-approval... In fact, it is highly recommend you get a written Pre-Approval Letter before you go any further in the home-buying process. 

Let's take a look at the differences . . . 

What is pre-approval?

It's basically a quick-and-dirty look from a lending institution at your creditworthiness. With a pre-approval letter in your hand, you're immediately in a stronger negotiating position with any seller, not to mention the peace of mind knowing that when you get the offer accepted, you are likely to get the keys to your new home...

But be aware that there are two types of "pre" letters:

  • Pre-qualification is an informal agreement between you and your lender. The bank gives their opinion on how much they think they will be able to lend to you based on imortgage preapprovalinformation that you have provided to them. Your bank doesn't do any background check s at this point. It relies solely on you portraying an accurate picture of your circumstances. Pre-qualification is more like a friendly handshake, and once material facts are reviewed, the lender can decide not to give you the loan based upon their review of your official iinformation. This is the mistake Kim & Bill made....  
  • Pre-approval is more serious. The bank will actually check your credit history, employment information, assets, and liabilities. The only thing they won't check is the property that you plan to buy, because, of course, you haven't found it yet! We highly recommend that you get a pre-approval BEFORE you begin physically looking at homes. It will put your mind at ease while you search for your new home and make the entire experience much less worrisome. Beware of lenders who charge for a pre-approval. A reputable mortgage lender is happy to spend time with you to review the process and answer any questions you may have.

Getting pre-qualified simply indicates that you have told a lender your income level and your debt and credit iinformation, and the lender has estimated what you can afford; Opposed to a Pre-approval, which is an in-depth review of your income, assets, debt to income ratios and credit. A Pre-Approval will provide you with peace of mind when making an offer on your new home.

I hope this iinformation has been helpful. If you have any questions about this process, please feel free to give me call or shoot me an email. I am here to assist you and help make your dream of home ownership a reality.....

Buying a home carries certain levels of stress, but financing should not be one of the stresses. Do yourself a favor and spend some time with a Mortgage Planner BEFORE you go looking for that perfect little home.

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Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Bob Edwards 02/09/2010 03:03 AM
  2. Rebecca Fisher 02/09/2010 07:21 AM
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Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Gwenn - Its bad enough when my clients start complaining about how much documentation they have to provide, I can understand that, if they're first timers, they don't know any better.  What's worse though is when their Realtors start complaining about how much documentation I'm asking for.  SERIOUSLY!!!

Any Realtor who doesn't understand that getting pre-approved nowadays is a very serious process needs to pull their head out and get a clue.  Personally, I don't need any Realtor telling me what I need to do in order to do my job.   

Feb 08, 2010 03:58 PM #1
Bob Edwards
Coldwell Banker- The Real Estate Group, Inc. - Appleton, WI
Fox Cities Real Estate Hotline, SFR- Appleton, WI

Good info Gwennie...often confused by Buyers and Sellers is the differance between pre-qual and pre-approve.

Feb 09, 2010 02:58 AM #2
Ian Niquette
Square One Home Inspection - Markesan, WI

Very nice Gwenn. I'm sure a lot of buyers would be like me in that situation and not even know the difference or think that it matters. Thanks.

Feb 09, 2010 10:34 PM #3
Brenda Carus
Century 21 Zwygart Real Estate - Monroe, WI

Too many buyers really do not understand the difference between pre-qualification and pre-approval.  This is great information.

Feb 11, 2010 05:09 AM #4
Kathy Caylor
Realty Executives Associates - Maryville, TN
Maryville, TN Real Estate

Such a great post, Gwenn.

With the current lending environment, I send my prospective buyers to a lender for pre-approval FIRST!! It saves both of us very valuable time and emotional stress. It certainly cuts down on my "customers", but definitely not my "clients"!

If they can't get approved then, the lenders I work with are also great to stay in touch and help them get in good condition so we can go shopping for that new home!

Feb 12, 2010 06:42 AM #5
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Gwenn....  I truly understand the two differences and I wonder if I am reading this wrong?  You stated this...  In your definition of what a pre-qualification is, you said "Your bank doesn't do any background check s at this point."  

I always do a credit check. All my pre-qualification letters specifically state that I have pulled their credit and have reviewd their income and assets.

Overall, yes, I will agree that a Pre-Approval is different and more intense.  And I think most pre-qual letters even state that credit has been reviewed and that income and assets have been reviewed. The pre-approval should be the same, but that it is run through DU or LP and reviewed by an underwriter. In my opinion, this is the true difference of a pre-approval and a pre-qualification. 

In any case, I know some loan officers and or lenders have different ways of doing things. thanks

Jeff Belonger

Feb 12, 2010 09:02 AM #6
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