The difference between a Pre-Approval and a Pre-Qualification letter.

Reblogger Jeff Belonger
Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc

 

I think the understanding of what the difference is between a pre-qualification and a pre-approval letter is very important, especially in today's market. I am finding to many consumers that have been led that they were pre-approved, when they were hardly pre-qualified.

If a loan officer or the lender hasn't collected your pay stubs for 30 days, 2 months worth of bank statements, and at least your W-2's... and, that you haven't filled out a mortgage application...  Then you aren't officially pre-approved.   Thanks, Jeff Belonger

 

To RE-BLOG this post, please go to : http://activerain.com/73570/The-difference-between-a

 

 

Original content by Jeff Belonger

Do you know the difference, as a consumer or even as a realtor? It can be deceiving when shopping for a home, because you might think that you are fully approved, but you aren't. Why doe this matter? There are several reasons why. 

Pre-Qualification Letter 

Just a standard letter by the lender stating that they have either verified your information over the phone or from your originals. The loan officer will review the information, anything from credit, to income, and with regards to assets. They then will place you in a certain program and go over the details with you. Usually to put an offer on a house, the realtor would want a pre-qual letter to accompany the offer that they will give the seller's agent. It will usually have a specified loan amount that you are qualified up to in regards to purchasing of your home. This paper doesn't always have the weight that one might think. There are many reasons why to this.

  • There have been some loan officers known to not even check your credit.
  • Some lenders just put anything down to get you comfortable, thinking that it's easy as 1-2-3.
  • Some consumers who thought were pre-qualified actually weren't, because the loan officer didn't really know how to qualify. Meaning, they didn't know how to read the credit, came up with the wrong income, etc etc. These mistakes could put you into a new loan program that might have a higher rate. Worst of all, that you wouldn't be qualified period.

Now, don't get me wrong. I am not saying that this happens often, but that it has happened in the past.

 

Here is a good blog written by Herb Hamilton : Choosing the Right Lender My 22 questions and the Answers to the Questions.  This can help some consumers on how to shop for a lender and what to look for.

 

Pre-Approval Letter 

commitment letter H

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Above is a copy of a Pre-Approval letter, better known as a Commitment Letter or a Loan Approval Letter.

This type of letter and or approval is very important for several reasons.

  • All of your information has been verified and approved by an underwriter. The only time that this might need to be updated is if there is a change in your income or if the approval has expired. Depending on the type of mortgage program, your credit is good for 45 to 90 days and would be listed on the commitment letter.
  • With this approval, you might have a better chance at getting your offer accepted. Why?  Because this would supersede any pre-qual letter. I have seen a few clients actually get a lower offer accepted because of this type of approval. This is a more powerful tool than anything else offered.
  • Basically, this form states that you are fully approved. Everything except for an appraisal, which would state "subject to an appraisal" and possibly in regards to title insurance also.

         This commitment letter would show you what is still need to finalize the approval.



As a consumer, you want to be careful on how you shop for your lender. It's recommended to speak to friends, family, and co-workers for a referral of someone that they have used and trusted in the past. Sometimes your realtor has a few trusted lenders that they have worked with over the past several years. If you trust the realtor, this might be your best option. 

One last thing to always keep in mind. When interviewing your loan officer, a very good one would ask you about your goals. He/she would want to give you different options and always be looking out for your best interest. Not just giving you what you want or think might be best for you. Just because your friend received a certain type of mortgage, doesn't mean it might be best suited for you.  Remember, there is a Big Difference in regards to the different types of letters.

 

Another must read: Are you really approved for that mortgage?

 

If you ever have any questions or would like to be pre-approved or qualified, please don't hesitate to contact me.

Jeffrey J. Belonger

Branch Manager    

888-835-1663     

Jbelonger@ihmci.com

 

____________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For more information on how you can obtain your dream home, please click here : Mortgage Financing Options

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!!


Copyright © 2007 by Jeff Belonger                                                                                                 

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Rainer
68,685
Alan 'AJ' Nisen California Contra Costa Mortgage Officer
A Large Bank in America - Lafayette, CA

Jeff, you know how some posts just catch your attention?  This one did for me. Great Post! AJ

Aug 09, 2008 03:39 AM #1
Rainer
170,605
Fred Chamberlin
Guild Mortgage Co - Oak Harbor WA - Oak Harbor, WA
Oak Harbor/Whidbeynulls, #1 Experienced FHA Mortgage Consultant

Jeff, back to the basics. Back to the basics. Back to the basics. Or, maybe, back to the future.

Aug 09, 2008 03:47 AM #2
Ambassador
749,468
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

AJ....  well, thank you very much. I read one that Rob Rauf wrote a few days ago and I agreed with him. And I wrote this over a year ago, that I wanted to see more details with everyone.  thanks again for the polite compliment.

FRED....  well, we should have never left the basics before...   yes, some loan officers are getting weeded out... and I am not perfect, but there should be some that are still out there that should have never been a loan officer.

 

Aug 09, 2008 04:14 AM #3
Rainmaker
400,528
John Cannata
214-728-0449 http://TexasLoanGuy.com - Frisco, TX
Texas Home Mortgage - Purchase or Refinance

Jeff - Looks like maybe you used the 'ReBlog' button?  Glad you clarified that.  I was not able to do it yet, but thought it was a good idea based on the post from Jason Crouch.  I think many agents have it confused, which certainly means that the homeowners do not always know the difference.  Anyway, thanks for the post.

Aug 09, 2008 04:21 AM #4
Anonymous
Anonymous

Jeff,

Well said.

It seems so simple, yet in prat ice nether consumer nor REALTOR seem to understand.

Bill

Aug 09, 2008 04:27 AM #5
Rainmaker
658,935
Randy Prothero
eXp Realty - Mililani, HI
Hawaii REALTOR, (808) 384-5645

Very important information.  I try to get all of my buyers to get a pre-approval from a local funding lender.  I receive pre-qual letters with offers on my listings that come from loan officer and brokerages, I have never heard of.  Most without a signature.  Not very strong at all.  You can guess what the percentage of those will not make it to the finish line if their offer is accepted.

Aug 09, 2008 06:14 AM #6
Ambassador
2,736,124
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

I don't care if the loan officer gives me a pre-qual or pre-approve letter.  I just want to know that they've looked at the credit report and not said "Eeeekkkkk"!

Aug 09, 2008 09:34 AM #7
Rainer
78,168
David Slavin
Keller Williams Premier - Katy, TX
CDPE, ABR, SRES Keller Williams Premier

The letters don't mean much other than the point that the buyer took the first step to have their credit checked.

Aug 09, 2008 10:05 AM #8
Rainmaker
595,266
Lisa Hill
Florida Property Experts - Daytona Beach, FL
Daytona Beach Real Estate

Jeff, we have some differences in definitions and the problems of pre-qual and pre-approval letters in our states. Bear with me here... pre-qual letters mean zilch here. It just means the buyer called the bank and TOLD them how much money the make and all their personal information, but the bank checks NOTHING in a pre-qual letter. So basically, pre-qual letters are useless pieces of paper.

In light of that information, it goes without saying the real estate agents want a pre-approval letter. But here's the real problem. The banks don't want to issue a pre-approval letter... pull credit, verify income, etc., without a contract. Do you see the problem? REALTORS don't want to show properties to a buyer who doesn't have a pre-approval letter, but the buyer can't get a pre-approval letter until they've found a house. We can't win! So we end up relying on pre-qual letters or hopefully we'll find the ONE in a milliion lending officer that will actually do the minimal work of pulling a credit report and making a few phone calls, so we don't end up wasting time  showing houses the buyer can't afford, or working with buyers who can't buy anything at all.

Aug 09, 2008 11:34 AM #9
Rainer
23,676
James Graner
Residential Services: http://appraisalmo.com - Saint Charles, MO

Oftentimes people use these terms in an interchangeable manner. Unfortunately that is very dangerous to their planning.

Aug 09, 2008 01:31 PM #10
Rainer
20,345
Mauricio Navarro
AOVZ.COM - Miami, FL

Jeff, thanks for your expert advise.. It seems people in the industry confuse these 2 a lot.. Thanks again for the clarification..

 

Aug 12, 2008 01:48 AM #11
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