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
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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.
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.
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
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