Confused? Pre Approved or Pre Qualified?
October 20, 2009
Many sellers in today's real estate environment are requesting that "pre approval" from the buyer's lender. Asset managers for the bank owned properties will not even submit offers without a "pre approval" letter which includes the buyer's credit score. "Pre approval" is quickly becoming an important element in any offer to purchase real property.
I believe that I have outlined "pre approval" in previous blogs, but it seems that buyers and sellers still have a bit of confusion about the difference between a"pre approval" letter and a "pre qualified" letter. The difference is in the process that takes place with the lender and the buyer.
Way back when it was much simpler to submit an offer to purchase and when lenders were eager to make loans, "pre qualified" was all that seemed necessary. Here is the process that was the usual method of obtaining a "pre qualification" letter from a lender. The buyer would be interviewed by a loan representative, either in person or by phone. Typically, the loan rep would ask the buyer what his monthly or yearly gross income was. The buyer would be asked about credit balances and debts such as car loans that were outstanding. Using this buyer supplied information, the lender would determine the income to debt ratios for the buyer. The letter would basically state that, based on the information received, the buyer would qualify for a purchase price of a stated amount with a loan of a stated amount, at particular interest rate and a monthly payment of so much including taxes and insurance. For a "pre qualification" usually none of the information given to the loan rep has been verified. The loan rep is relying on the accuracy of the information supplied by the buyer.
A "pre approval" letter is one that carries a great deal of weight. The buyer has filed an application with the lender, the information as to income, debts, employment has been verified.
The letter should also contain a commitment from the lender to make the loan within a specified period of time subject only to the appraisal of the subject property.
Buyers who can supply a seller with a "pre approval" letter are looked at favorably by sellers.
Buyers in today's real estate arena want to complete the pre approval process as early in their home buying search as they possibly can.
Just one caveat for sellers. A "pre approval" is not an absolute guarantee that the lender will make and ultimately fund the stated loan. Those of us in the business may have experienced the denial of a loan to a "pre approved" buyer. So the caveat for both buyers and sellers is the famous quote "It isn't over til it's over." Until a loan is funded and the deed recorded, events can occur that change the lender's approval of the loan. It doesn't happen often, but it can. It is not that buyers and lenders were being deceitful. In this market it is more likely that lending guidelines changed from the time of the pre approval until the funding of the loan.
Many sellers in today's real estate environment are requesting that "pre approval" from the buyer's lender. Asset managers for the bank owned properties will not even submit offers without a "pre approval" letter which includes the buyer's credit score. "Pre approval" is quickly becoming an important element in any offer to purchase real property.
I believe that I have outlined "pre approval" in previous blogs, but it seems that buyers and sellers still have a bit of confusion about the difference between a"pre approval" letter and a "pre qualified" letter. The difference is in the process that takes place with the lender and the buyer.
Way back when it was much simpler to submit an offer to purchase and when lenders were eager to make loans, "pre qualified" was all that seemed necessary. Here is the process that was the usual method of obtaining a "pre qualification" letter from a lender. The buyer would be interviewed by a loan representative, either in person or by phone. Typically, the loan rep would ask the buyer what his monthly or yearly gross income was. The buyer would be asked about credit balances and debts such as car loans that were outstanding. Using this buyer supplied information, the lender would determine the income to debt ratios for the buyer. The letter would basically state that, based on the information received, the buyer would qualify for a purchase price of a stated amount with a loan of a stated amount, at particular interest rate and a monthly payment of so much including taxes and insurance. For a "pre qualification" usually none of the information given to the loan rep has been verified. The loan rep is relying on the accuracy of the information supplied by the buyer.
A "pre approval" letter is one that carries a great deal of weight. The buyer has filed an application with the lender, the information as to income, debts, employment has been verified.
The letter should also contain a commitment from the lender to make the loan within a specified period of time subject only to the appraisal of the subject property.
Buyers who can supply a seller with a "pre approval" letter are looked at favorably by sellers.
Buyers in today's real estate arena want to complete the pre approval process as early in their home buying search as they possibly can.
Just one caveat for sellers. A "pre approval" is not an absolute guarantee that the lender will make and ultimately fund the stated loan. Those of us in the business may have experienced the denial of a loan to a "pre approved" buyer. So the caveat for both buyers and sellers is the famous quote "It isn't over til it's over." Until a loan is funded and the deed recorded, events can occur that change the lender's approval of the loan. It doesn't happen often, but it can. It is not that buyers and lenders were being deceitful. In this market it is more likely that lending guidelines changed from the time of the pre approval until the funding of the loan.
posted by shirley harry at 9:39 AM
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