Pre-Qualification and Pre-Approval

Lender Letters


When you are selling your home For Sale by Owner or even with an agent, you’ll need to understand what kind of approval is provided with an offer. Many people get pre-qualification and pre-approval mixed up but they are entirely different as to how secure their financing is.


Always Inspect Lender Letters Carefully!


The mortgage industry often provides relaxed letters of qualification or approval for clients who may or may not be able to close on the house.


We will look at pre-qualifications and pre-approvals further below.


Pre-Qualification


What Is A Pre-Qualification Letter

Pre-Qualifications are lender letters based on estimates of a buyer’s overall financial situation.


Estimates on debt, income and assets are provided to the bank or lender. The lender then reviews everything and gives a price range of how much the borrower can expect to receive.


These can be done online or directly with lenders. Furthermore, they are typically free to complete.


How Is It Different Than A Pre-Approval?


Pre-qualification is quick, usually taking just one to three days to get a letter.


Keep in mind that loan pre-qualification does not include an analysis of credit reports or an in-depth look at the borrower’s ability to purchase a home.


The lender in a pre-qualification usually does not receive any documentation. The potential borrower is verbally providing an idea of who they are financially speaking.


A pre-qualified buyer does not carry the same weight as a pre-approved buyer. As a Realtor, I tend to stay away from pre-qualified letters for offers and request that the borrower goes back and get a full pre-approval.


Pre-Approval


What Is A Pre-Approval Letter?

A pre-approval is an offer (but not a commitment) to lend a specific amount, valid for 90 days.


Getting a pre-approval involves extra steps for the buyer, but it further ensures a borrower can close a deal.


This type of letter is usually based on firm financial records. Bank statements, W-2, 1099, tax returns, investment accounts, or credit scores are generally used.


The borrower must complete an official mortgage application to get pre-approved and supply the lender with all the necessary documentation to perform an extensive credit and financial background check.


The lender will then offer a pre-approval up to a specified amount.


Lenders will provide a conditional commitment in writing for an exact loan amount, allowing borrowers to look for homes at or below that price level.


This puts borrowers at an advantage when dealing with a seller because they are one step closer to getting an actual mortgage.


Side Note

Remember there are still conditions to be met on the mortgage side, even with a pre-approved letter.


You should always call the lender and have a brief discussion about the pre-approval letter.


Find out if there is anything major lacking from the file that could cause the loan to pause or be denied at later date.


Make sure they have reviewed credit, all documents and ask if they owe the lender anything.


Sellers,

DO NOT BE AFRAID TO ASK QUESTIONS TO THE LENDER OR BUYERS AGENT!

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