Difference between approval and qualification to buy a home?

By
Mortgage and Lending NMLS#1089067

What's the difference between an approval and qualification to buy a home? This is a hot topic in the mortgage industry in North Texas. With low inventory and multiple offer scenarios, before an offer is accepted, a solid buyer is desired. I believe that vocabulary and knowing what work the loan representative has done is the problem. Let's define some of the vocabulary in the mortgage business about qualifying to buy a home:

 

Prequalification- Loan representative verbally collects annual income and amount of assets. Secondly, the representative will pull credit or ask for scores, ask additional qualifying questions, and then sends a letter saying you've been prequalified. Not worth much.

 

Conditional Qualification-  After asking a few qualifying questions, the loan representative completes an application, pulls credit, and runs application through an automatic underwriting system (DU or LP). The loan representative may request income and asset information depending on the complexity of the borrowers situation. The loan representative reviews and discusses the "findings" of the automatic underwriting approval. Finally, sends a "Conditional Qualification (Form A)" letter. Most realtors and loan representatives would agree that this would be considered a pre-approval. The more boxes checked on "Form A" the better the qualification.

 

Conditional Approval- Loan representative completes an applicationpulls credit, runs application through an automatic underwriting system. The loan representative requests all income and asset information. The loan representative asks additional qualifying questions. The loan is an application so disclosures must be signed, then sends "complete" loan file to underwriter. Finally, a conditional approval is issued. Nationally, most lenders will NOT do this unless the borrower has a purchase agreement.

 

Again, knowing what work your loan representative has been done is the key to a successful loan process. More details about the different forms are listed on one of my past blogs:

 

Making an offer on a home in Texas, get this or lose that home!

 

 If you are buying a home seek a licensed residential mortgage loan originator who you trust will review your complete financial situation, explain the process, and give you what you need to win that offer. In Texas, contact Jimmy Smith for questions or a no obligation loan consultation.

 

 Jimmy Smith, NMLS#1089067

jsmith@alliancemtggroup.net, (214) 872-9091 Ofc

Comments (2)

Elite Home Sales Team
Elite Home Sales Team OC - Corona del Mar, CA
A Tenacious and Skilled Real Estate Team

I think that consumers and even some agents need to review this blog.  Thanks for the blog.

Aug 22, 2014 01:11 AM
Dana Allen
Movement Mortgage - Frisco, TX
Market Leader - Movement Mortgage

Well written and acurate.  A very big difference between the three letters.  Strongly recommend getting your buyer Conditionally Approved and leverage the letter to win the seller's confidence.  Equates to more contracts accepted, faster closing dates and fewer contracts lost due to the borrower not qualifying.

Sep 25, 2015 05:11 AM