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

By
Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc

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

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

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Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc

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Re-Blogged 3 times:

Re-Blogged By Re-Blogged At
  1. Jeff Belonger 08/09/2008 03:34 AM
  2. Annette Thompson 04/07/2009 09:57 AM
  3. Diana Perez 05/31/2009 01:32 AM
Topic:
Lending / Financial
Location:
New Jersey Mercer County Princeton
Groups:
Realtors®
Mortgages
All About Mortgages/Mortgage Networking
Realtors Needing the services of the Lending Powers
1st Time Buyers
Tags:
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hard money loans
commitment letter
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Rainmaker
133,899
J Perrin Cornell
Century 21 Exclusively, Wenatchee, WA - Wenatchee, WA
Broker, ABR, VAMRES

You are right on your point!

However, an other important ingredient is to know the mortgage person you are working with. Even with pre-qual letters I may have way less problems with some mtge lenders (direct or not) than I have with others that I did not know and still had a pre-approval. For example some well known on line lenders...don't know the market (local), escrow people, appraisers..etc.

Apr 11, 2007 01:51 AM #12
Rainer
62,962
Flemington, NJ
Great post. The thing is in today's changing market, a pre-approval or loan commitment today may not be vaild 30 days from now as the secondary market continues to adjust.
Apr 11, 2007 02:44 AM #13
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Randy.... stress?  What would this job be like without stress?  ;o)  Seriously, it would be very nice if less stressful. Thanks for stopping by and for your feedback.

Benjamin.... thanks, I truly appreciate that. Wait for my next rabbit.  I do appreciate the comment..

Perrin.... thanks for the polite words. And as you mentioned about who to work with, I included a few links in regards to picking your lender. 

In regards to being an outside lender and not knowing the local market or knowing the appraisers, title people, etc etc. In my opinion, this is not always true.  There are some loan officers as myself, that build a very good network and surround ourselves with good people, even out of state. About 20% of my clients are from Florida and I have never missed a settlement date. I try to be all over and it can be done... and work for some. I know what you are saying. But this is one thing that I try to get consumers and realtors to think about and consider. The proof is in the pudding, but you need to take that step and try that person. Just my .02.

Thanks for your input. 

Michael....  this is so true, as the market adjusts. But a very good loan officer is going to have multiple back ups and or know where to turn if something goes array last minute. Sure, it won't always work, but it can be accomplished with the right mind frame. And thanks for the compliment.

Apr 11, 2007 02:59 AM #14
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Celeste "SALLY" Cheeseman
Liberty Homes - Mililani, HI
(RA) AHWD CRS ePRO OAHU HAWAII REAL ESTATE

Stress?  Do any of us go through any stress?  How come I had a stressful week?

 

Apr 11, 2007 04:35 AM #15
Rainmaker
133,899
J Perrin Cornell
Century 21 Exclusively, Wenatchee, WA - Wenatchee, WA
Broker, ABR, VAMRES
Jeff...I didn't mean you but was rather referring to other on-line or over the TV lenders... their request gets to a appraiser that doesn't know them from a hot rock. because the appraiser will probably never see them again the clients he works for daily go to the top of the pile... as an example. And IF you do have trouble try finding someone that can really make thngs happen...
Apr 11, 2007 09:41 AM #17
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
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Sally.... where did this come from?  Stress?  Or are you carrying this over from your previous blog?  ;o)

Terry.... thanks for that compliment and I'll take a look at your link. 

Overall, thanks for your reinforced feedback and input. But the guarantee stuff... I am very good at for the most part, even prior to closing and funding, no matter how the market is. The only thing that would have been negative was the 100% loans with a 580 score. But my way out... these lenders still gave people 2 weeks to close on these types of deals. If you take a good application, that is usually the length of time that is needed to close on a deal anyhow. Just having your ducks in a row.

Perrin.... I wasn't saying that you were talking about me either. I was just generalizing on how I work. That I can work just as efficiently locally as I can 4 states away. As long as I have prepped myself with my so-called circle of networking relationships... aka realtors, appraisers, and title people. ...which I have done in several states. I take that part seriously. That's all that I was trying to explain.  Thanks for clarifying this though. 

Apr 11, 2007 09:49 AM #18
Rainer
41,109
Dominick Gaccino
Dominick gaccino - Peekskill, NY

many do not understand the diff

 

great post

 

also they dont understand the catch 22 when it comes to getting a commitment....they want a commitment from a lender before they sign a contract yest the lender wont look at a purchase wo the contract.

 

I try to explain that to people but it seems to go over their heads

 

DOMINICK GACCINO

Branch manager

First Suffolk Home Mortgage Corp

Apr 11, 2007 10:40 AM #19
Rainer
75,626
Ann Guy
NA - Allentown, PA

Jeff-I think you cheated.  I was just thinking about writing about the same topic.  So, my thoery is you stole it right from my mind.  JK.  It's just that great minds think alike. 

Hey, good topic!

Apr 11, 2007 12:01 PM #21
Rainmaker
311,264
Brian Brady
San Diego VA Home Loans/858-777-9751 - San Diego, CA
858-777-9751
I just had this conversation with a Realtor today.  I'm emailing this to her because I can't think of a more complete explanation.  I, too, prefer the Mortgage Loan Commitment Letter (and use it as a lock letter, also)
Apr 11, 2007 04:12 PM #22
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
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dominick....  thanks for stopping by and for the compliment & comments. But curious, in regards to your last statement. We will still give pre-approvals even without a contract. This is key and important....

Terry.....  you make some valid points. But I guess I need more info in regards to the example with the credit score issue. How long was it when credit was pulled and the commitment issued? And when was it going to close?

Ann.... cheated?   sorry....  ;o)   As I told someone else, this has happened to me a few times. I had a great idea one day and didn't get to it for a few days. Next thing I know, the exact topic that I was thinking about, was even featured.  Yes, great minds think a like... thanks for stopping by.

Brian.....   thanks for the compliment and I hope this helps your realtor.

And we need to educate the consumer on this, because so many think they are approved when they talk to a loan officer the first time. Or is it because so many lenders mislead the client... to get them in the door?

Apr 12, 2007 07:28 AM #23
Rainer
213,409
Eddy Martinez
Nationwide Funding Group - Highland Park, CA

Great Explanation Big Jeff i like how you pasted the actual commitment letter. Most lenders do not apply that.

Eddy

Apr 12, 2007 11:29 AM #25
Rainmaker
888,138
Gail Robinson
William Raveis Real Estate - Southport, CT
CRS, GRI, e-PRO Fairfield County, CT
Jeff, Thank you.  This is very helpful and timely as I had asked the buyer's agent for a pre-approval letter and received a pre-qualification letter.  When I called the buyer's agent to obtain the pre-approval letter, she told me the loan officer just "wasn't good with words" and meant pre-approval letter.  I asked for permission to call the mortgage officer, so I can find out for myself what information was verified and what kind of loan the client is approved for. 
Jul 28, 2007 09:54 PM #26
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

TERRY......  how low was the credit score?  What percentage were they putting down?  That is why I couldn't be a broker.... I want full control and a company that understands that credit doesn't need to be pulled again, in the middle of the process. Credit is good for 90 days and 120 for new construction.

EDDY....  thanks...  so for the delay in responding... hope all is well.

GAIL......  my pleasure.... so many people get the two confused and many lenders let their clients believe that they have been pre-approved, when they have hardly been pre-qualified....   I always introduce myself to both agents, telling everyone that anyone can call me. I have nothing to hide.

 

Aug 09, 2008 03:19 AM #27
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
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TERRY.....  just curious, did you even look at FHA at that moment?  Were you approved FHA at that time?  10% down and those credit scores?  if they had decent credit for the last 12 months, not perfect...  it sounds like it would have closed with a FHA loan.  Sure, I would need to know more, but not much more..

 

Aug 11, 2008 03:54 AM #29
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Jeff Belonger
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TERRY......  kind of what I figured, because it sounded like a FHA deal, especially with 10% down and those scores.  And yes, if FHA approved, she stil might be in business.

 

Aug 13, 2008 04:02 PM #31
Rainer
41,109
Dominick Gaccino
Dominick gaccino - Peekskill, NY

I don't pre qual anyone without actulally getting all their info together and submitting that along w downloading credit into Desktop UW (DU)

 

if i get an approval from that then I would send them a pre qual letter...................pointless wasting anyones time unless you know you can get the job done

 

DOMINICK GACCINO

Aug 15, 2008 01:40 AM #32
Rainer
5,696
Richard Baggett
AFI Mortgage - Lake Charles, LA

As a lender I am always amazed at the number of folks that think there approved simply by calling a loan officer and telling them there income and payables.

Aug 15, 2008 03:42 AM #33
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

DOMINICK...... well, I rarely ever do that Dominick.  And most of my loans are FHA loans and 98% of them I know would be refer/eligibles.  It's because I know what I am looking at and I know what my undwerwriters would except.  

So, you are telling me that if you don't get an approval, then the loan is not qualified and possibly dead? Just curious....  in my 16 year career, I have only had 2 loans denied and one was actually after putting a loan in DU. The convnetional guidelines on my community changed a week later....  once they found a house, we re-ran it and it was not approved. You can always hang your hat on an approval from the system, not on conventional loans in the market.  Just my opinion.

 

RICHARD......  yes, I am amazed also... but you know what, I blame a lot of this on the loan officer though, for not explaining this in detail. I give my clients a pre-qual letter once I qualify them.  Many loan officers don't do this until the realtor asks for it.... so, put yourself in the consumers shoes. Would you know the difference?

 

Aug 15, 2008 03:49 AM #34
Rainer
73,781
An Marshall
Berkshire Hathaway - St. Augustine - Saint Augustine, FL
Your St Augustine Real Estate Consultant

I have always had trouble remembering and understanding the difference between the two.

Jun 23, 2009 09:22 AM #35
Rainmaker
1,477,456
Inna Ivchenko
Barcode Properties - Encino, CA
Realtor® • Green • GRI • HAFA • PSC Calabasas CA

A pre-approval letter is more reliable than a pre-qualification letter. A pre-qualification letter has too many loopholes. It includes language such as “pending verification of buyer provided information.” Anyone can get a prequalification letter.  You just call a mortgage broker or lender, provide some basic financial information, then wait a few minutes for the letter to be emailed or faxed. Buyers can even get a pre-qualification letter from a Web site:  they enter some information, click "submit" and voilà! Financial fast food. Want fries with that?

A pre-approval letter, on the other hand, has more substance, and it’s harder to obtain. It involves lender verification of the information provided by the buyer. Rather than taking the buyer’s word on faith, the lender will ask for documentation to confirm employment, income, the source of the buyer’s down payment and other aspects of their financial situation. Obtaining a pre-approval is more time-consuming than a pre-qualification letter, which is exactly why it carries more weight in the eyes of sellers.

Apr 17, 2014 05:08 PM #36
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