Pre-Qualification vs. Pre-Approval

In today's wacky Real Estate market, the most important highly critical task that a buyer must complete is making sure that there mortgage is locked and loaded. Now if we rewind the tape back 5 years, all a buyer had to do was call a loan officer and answer a few questions over the phone and WAALAAH....."Congratulations, you are Pre-Qualified to purchase a home"

The crazy part is that they would actually get the loan with no issues what so ever, and don't get me started on the crazy terms that they were given like: Zero Down 100% Financing, Stated Income Loans, Interest Only Loans, CPA Letters that qualify for income verification, and on and on! I bring up the past to show you how it used to be and how easy it was just to talk with any lender and get approved over the phone for a loan.

Now lets fast forward over to the now and today's market. Mortgage & Lending guidelines have drastically changed and are much much more strict, detailed, and require a lot more than a CPA letter for income verification. Today, just getting Pre-Qualified won't due the trick, see now a borrower must get fully Pre-Approved up front so that they can fully insure that they will be able to get that loan.

Here is the difference between the Pre-Qualificaton Process and the Pre-Approval Process:

Pre-Qualification Process

Borrower has spoken to a loan officer or mortgage banker and they have provided the initial information of income and assets. Then the loan officer or mortgage banker provides a "Pre-Qualification Letter" and makes there preliminary assessment of the proper next step.

Possible next steps as determined by the information:

*Pull Credit Report

*Review Income Documentation

*Review Asset Documentation

Pre-Approval Process

Borrower has completed the application process with a mortgage banker or direct lender who has documented and reviewed all of the required income, assets, and credit and process the application through the underwriter process with either and automated underwriting process or a live underwriter. Also the lender has checked current underwriting guidelines to determine programs of eligibility. Then mortgage banker or direct lender then issues a "Written Loan Commitment" that is subject to a contract, appraisal, and clear title. (In addition to a final review of previously submitted items)

At this point, the following has already been done:

*Credit reviewed

*Income Verified

*Assets Verified

*Tax Returns Reviewed

*Application & Disclosures Processed

*Package Prepared-Redacted

*Underwriting Completed

*Letter of Commitment Provided

Here is an Episode from "Friday's with Fred" where I go over this exact topic

There is a HUGE difference with these two process's and in today's market a Pre-Qualification letter really bears no weight when it comes to purchasing a property. Yet on the other hand, if you have a Pre-Approval or Commitment Letter from a Mortgage Banker or Direct Lender, you will definitely place yourself above the crowd when your bidding against other buyers for that Foreclosure, Short Sale, Or Standard Equity Sale.

If you have any questions regarding the Pre-Qualification or Pre-Approval Process, feel free to contact our offices anytime!