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Steven A. Ornellas
Expect Excellence. Get What You Expect.™
39210 State St., Suite 100
Fremont,
CA
94538
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Pre-Qualified vs. Pre-Approved vs. "True Pre-Approval"
As a Realtor®, Mortgage Planning Specialist, and former Mortgage Banker / Broker I have been asked the "What can I afford to buy?" question many times. A "Pre-Qualification" is one way to answer that question, but in my opinion, it's definitely NOT the right way!
For a Buyer to obtain a “Pre-Qualification” a lender simply obtains verbal information to determine how much a Buyer can likely afford. Since most of the information is not verified (a credit report is often obtained), true actual credit worthiness is never determined. For this reason, many Sellers will not accept an offer from a "Pre-Qualified" Buyer when other "Pre-Approved" Buyers are showing interest in their property.
On the other hand, a "Pre-Approval" is quite definitive in establishing a Buyer's true credit worthiness because information provided is backed-up with full documentation (Tax Returns, W2, pay stubs, bank/savings statements, signed loan application, credit report, etc).
The strongest Pre-Approval (aka "True Pre-Approval") has a Desktop Underwriter (DU) or Desktop Originator (DO) report with an "Accept" status from one of these two automated underwriting systems (AUS). Note: Retail Banks (such as Wells Fargo, BofA, Chase, etc.) do not take this step until after a Buyer enters into contract, which exposes the Buyer to financial risk!
A professional loan Pre-Approval is THE first step to properly buying a home. When one starts the process with just a Pre-Qualification, a great deal of time can be wasted, not to mention the loss of a property that would have met your needs perfectly, funds expended on inspections/appraisal (approx. $1-1.5K) or even a complete purchase deposit. A thorough Pre-Approval helps to establish two very important bits of information:
1) A Buyer's maximum purchasing power based on current mortgage rates AND current mortgage products available,
2) A list of candidate homes matching a Buyer's needs at, or below, a Buyer's max price using different mortgage products.
A Pre-Approval is really only valid on the day it is provided. The truth of the matter is if any of your key information changes negatively the Pre-Approval may be affected (i.e. income lowers, debts increase, you buy a new car, interest rates spike, etc.). In these cases the Pre-Approval must be adjusted. A Pre-Approval is a "commitment" to loan the Buyer up to the stated amount provided on the Pre-Approval letter, subject to the final Underwriting process (consisting of prior-to-loan-documents and prior-to-funding reviews) and property appraisal.
Many Buyers believe the rate on a Pre-Approval is a guaranteed "locked rate". In actuality, the rate shown on a Pre-Approval is an approximation. This is because rates can change at any time based on the ebb and flow of Mortgage Backed Securities trading on Wall Street. In order to lock an interest rate a property address must be identified, a loan product selected and a rate lock request confirmed with the selected lender/investor.
If you are serious about purchasing a home I would HIGHLY encourage. you take the important first step of obtaining a "True Pre-Approval"!
Let's see what's possible!
Wondering what documentation will be required to obtain a True Pre-Approval and loan? Click Here
© Steven Anthony Realty
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