What is the difference? This morning while making breakfast for my father-in-law and looking at my calendar for the day, and listening to Good Morning America (Housing Prices through the Roof), these are the suggestions I heard for success in this market… “Know the Price,” “Don’t Dawdle,” “Be the Back Up Buyer,” “Get Pre-Qualified,” These are all great points. Regarding getting pre-qualified- I say get pre-approved. There is a difference and saavy sellers do not need to accept an offer from someone who has been pre-qualified when they likely are sitting down to review multiple offers.
I often hear new clients mention that they are pre-qualified and this makes me a little nervous because this usually means that they have simply talked to a lender and that they have received a verbal, “Go ahead.” With low inventory and multiple offers, when I write an offer in behalf of my clients I know that there are factors other than just price that can impact the likelihood of the offer being accepted, being pre-qualified to me means that the lender still needs to go through the paperwork and documentation to determine whether the client is reallg good to go, or if there could be bumos in the road, sometimes of no fault of their own – what is something off the wall landed on their credit report and now we cannot perform on the contract? We have lost a house they really wanted and we have put a blemish on our credibility with the listing agent, should they have another listing of interest to the buyer when we get everything situated.
I asked Michael Dormer, Senior Branch Manager with Top Flite Financial, and my go to guy for anything relating to home mortgages. His knowledge level in real estate finance is impressive and I know when I refer a client to Michael they will be well taken care of whether they are experienced real estate investors or first time home buyers, or even future buyers who need to know what to do to be on track to purchase a home in the future.
Here is what Michael had to say about Pre-Qualification vs. Pre-Approval:
There is no commonly accepted definition for either of these terms in the mortgage world, because – as you have likely learned by now – some lenders do their research before writing a pre-approval letter, and some have seemingly done nothing at all. So, below is the “Michael” definition, to which I can’t imagine any right-thinking lender would have objection –
Pre-Qualified: The lender has performed a basic analysis of the client’s financial status. This is a cursory review, typically done over the phone or via a simple online form, and aims to establish whether or not a client is likely to be eligible for a home loan. Income, debts, and available assets are considered for a rough calculation of the client’s purchasing power, but instead of pulling a credit report, the lender usually relies on the client’s self-assessment of their credit. Further, the nuances of a client’s financial profile (i.e. whether or not they have filed their tax returns in a timely manner) are generally not explored, which gives rise to potential problems in the accuracy of a pre-qualification.
Pre-Approved: The lender has issued a formal statement to assert the client’s creditworthiness, contingent upon further investigation by a qualified underwriter, and satisfaction of any concerns that may arise from that process. In this statement (typically, “Pre-Approval Letter”), the lender states the client’s purchasing power, required down payment, and type of loan for which they qualify. The actual process used to confer this status does vary from institution to institution, and even individual lender to lender. Some lenders require little more than the information gathered during the pre-qualification process to tender the pre-approval. Others require a full written application from the client, along with a complete accounting of their employment history, income, assets, and a credit report. Because the quality of the process varies, the integrity of the pre-approval letter also varies. With rare exception, lenders who conduct thorough client interviews and take detailed applications, pave the way for a significantly increased likelihood that their financing will remain intact throughout the purchase transaction.
Michael Dormer [MLO 117192]
Branch Manager | Senior Mortgage Advisor
12510 128th Lane NE – Kirkland, WA 98034
Direct Line: 425-242-7052
Fax Line: 425-242-7062
Contributed By: Buyer’s Specialist Tracey Holmes
Direct Phone: 425-971-8865
Office Phone: 425-931-3275
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As a Buyer’s Specialist on an outstanding team we use our resources, time, and energy to help home buyers make their dreams come true. In our experience, many agents rely mostly on the multiple listing service – we recognize that with the often limited inventory in our area, this will not necessarily be enough to find the best candidates for our clients.
It may sound a little simple-minded, but going to work for my clients is like a treasure hunt. We enjoy the challenge every step of the way…and there is nothing simple minded about that!