Mortgage FAQ: What is the difference between a Pre Qualification and a Pre Approval letter?

In this Blog, Mary Brabner, Vice President, Mortgage Loan originator, at Bank Plus provides valuable insight into the mortgage process.

“Before you go house hunting and fall in love with a house that may be over your budget, please get pre-qualified or pre-approved.  Know the difference in the two steps so that you don’t get heartbroken.

A Pre-Qualification can be as simple as talking to your lender and giving them all the information they need to accurately determine how much house you can afford.  This can be done over the phone however many people like to fill out the application online and have the lender call them back to discuss.  Either is acceptable, depending on the lender.

A Pre-qualification requires a credit pull so the lender has knowledge of all debts to be included in your debt-to-income ratio (DTI).  The lender will calculate your overall DTI ratio by dividing your debts by your income.  The approvable level of DTI depends on your credit  score, loan program, and the amount of money you are planning to put down on the mortgage.

The lender will then run all the info through the Automated Desktop Underwriter (DU) or loan Prospector (LP) systems to see if the loan is approvable.  Upon receipt of the automated approval, the lender can provide you with a pre-qualification letter stating that you are conditionally approved based on the information you have provided, clear title to the property and an accetable appraisal at or above the sales price on the contract.  After this step is complete, the lender will begin collecting documents to validate the information you have submitted.

A Pre-Approval starts out in the exact saem way as a pre-approval but is a more valuable apprvoal because it has been conditionally approved by a licensed underwriter.  The loan officer will collect 30 days of paystubs, 2 years of W2s, 2 years of federal tax returns, 2 months of bank statements on all accounts that will be used for closing funds, copies of your drivers licenses, and additional docs as needed based on the loan program you select.  The loan application is submitted to the underwritier for verification of the info and once the underwriter approves the application, then the lender will send you a pre-approval letter.

A Pre-Approval letter is a more concrete approval and wshows your reraltor and the seller you have been “vetted” and are a qualifed buyer as opposed to a borrower that has only been pre qualified.  In a multiple offer sitation, the pre approval holds more weight with the seller and con close sooner because the underwriter has already approved all the income and assets to be used in the purchase transaction.

Once you have been pre-qualifed or pre-approved, DO NOT open new credit accounts.  That could affect whether or not you are still pre-approvable.  For instance, if it is essential that you purchase a new car during this process because you wrecked your current car, let your lender know immediately so the proper adjustments can be made.”

For more information, Mary Brabner can be reached at 251-591-0695 or marybrabner@bankplus.net

Thanks to Mary for providing this insight into the mortgage process.

Carl Gustafson – Real Estate Broker

251-533-8028

carl@thegustafsonproperties.com