Pre-Approval vs Pre-Qualify
Before visiting your realtor, you can make the entire purchase process
easier by getting a pre-approval from the lender. When you visit a mortgage
professional, they will either "pre-qualify" or "pre-approve"
your mortgage application. Understand the difference and set your expectations
accordingly.
These two terms have become interchangeable through the years and that is unfortunate
for many borrowers. Here is the real story.
With a pre-qualify, the mortgage professional reviews your finances, credit
report and income and then, based on their experience, estimates an approximate
amount of a mortgage that you should be able to qualify for.
With a pre-approval, you actually apply for a mortgage with an address
"To Be Determined Later" and the application is submitted to a lender
and an approval is issued subject to the home qualifying.
Be Prepared
With a pre-qualify, there still may be issues to resolve and the mortgage can
take literally weeks to complete and have a closing on the home.
Unfortunately, many of these mortgage people will call a pre-qualification a
pre-approval when this is not the case. There is a big difference. If you only
talked to someone on the phone, you are not pre-approved. If you have not paid
a deposit and signed an application, you are not pre-approved. If you are dealing
with a mortgage professional who has not spotted a possible issue, you may not
get a mortgage or have to pay a higher interest rate in order to get the loan.
Now, if this is a mortgage professional who you have worked with in the past
and they know your financial history (not what you told them on the phone!)
a pre-qualification may very well be just as good as a pre-approval.
Regardless of whther you have a pre-approval or a pre-qualification, neither
is a guarantee that a mortgage will be issued for the home you have chosen.
The home still must qualify too! If you offered more than the house is worth,
the bank will not give you a loan.
Pre-Approval
The pre-approval is the actual process of applying for a loan and sending your
loan application through the underwriting process. You will receive a commitment
for a loan up to a certain amount that is conditional upon an appraisal of the
the desired property meeting the bank's approval and the purchases price.
The largest advantage to this process is time. When you need just an appraisal,
the time between the signing of the purchase agreement and the day of closing
is in the range of 1 to 2 weeks whereas the entire loan application process
takes 30-45 days.
You should apply for the maximum in a pre-approval. You can reduce the mortgage
amount in a day or two, maybe even hours. Increasing the mortgage amount is
the same as going through the approval all over again.
Since you will surely have the time to get this pre-approval in hand as it will
take you some time to find the right house to meet your dreams, why not use
some of this time to get a pre-approval?
Pre-Qualify
If you are looking for a quick indication of whether you will
qualify for a loan, many mortgage bankers will pre-qualify you.
A pre-qualification is a peek at your assets and liabilities, your annual income
and a determination of how much of a mortgage payment that you should be able
to afford assuming that none of these conditions change before the settlement
date.
The mortgage professional will then issue you a "pre-approval" certificate
or letter on company letterhead indicating that they have reviewed your finances
and that is appears that you could
qualify for a mortgage loan up to
$XXX.
A note of caution: A pre-qualify is NOT a guarantee that you will get a loan.
This is only an estimate.
What should you really do?
Start with the mortgage professional, not the realtor. You will have less stress,
you will close the house faster and you will likely win a close race between
buyers if you actually have a pre-approval rather than a pre-approval certificate.
Summary
These terms are interchangeable in the industry so make sure to ask which of
these types of approvals that you are receiving.
Of course, it is very easy to tell if you receive a "pre-approval."
If you have not signed an application and just given information over the phone,
your approval is nothing more than an estimate of whether you will qualify for
the loan.
Do not expect more than you have given to the mortgage banker! If you have not
given a deposit and taken the time to get a true pre-approval, you can count
on having many more steps in the process to go through.
Give me a call or fill out the
information
request form and we will discuss the options that are available for you!
