Time to Review Pre-qual vs Preapproval

Time to Review Pre-qual vs Preapproval

Today both consumers and Realtors are looking for some type of qualification prior to entering into a contract. Most Realtors require their buyer to be at least prequalified prior to showing them homes. Otherwise they feel the potentional buyer may just be wasting their time. Savvy buyers on the other hand really want to know their limits prior to shopping for a home. To a buyer there is nothing worst then looking at homes they cannot afford or would not qualify for. It sets unreal expectations and sets the stage for disappointment down the road.

Many Realtors and Buyers misuse and/or misunderstand the differences between the terms pre-qualification and preapproval. I have written about this before but recently received an email from my home office with our company’s new procedures on doing a preapproval. Within it was their defined differences or pre-qual and preapproval. So, here below are some excerpts from that email

Difference between Pre-qualification and Pre-Approval

Pre-qualification is an evaluation of a customer’s creditworthiness and provides that the customer is likely eligible for a loan up to a certain amount. Our company has a credit and/or income prequal process for customers looking to see how much home they can shop for and likely be approved at. The eligibility is granted subject to full verification and a complete approval process.

Pre-approval is a firmer commitment which includes all the work of a full underwriting approval, except for the appraisal and title search. This would include a full review of all credit, income, assets, contain full verifications, LOE’s, findings, and be reviewed by investor and/or agency guidelines. The approval is granted subject to standard underwriting conditions and the identification of a suitable property.

Pre-approvals are specific to TBD (to be determined) addresses where the property is the last thing to be identified. Make sure you’ve completed a full application with the exception of leaving the property address TBD with a city/state/zip.

One caution I would add to this is if the property is a TBD the taxes and homeowner’s insurance could vary greatly. Another item is HOA’s, Homeowners association and Condo fees can lower a consumer purchasing power greatly. So, it is important for both the Buyer and Realtor to ask the loan originator if the amount in the pre-qualification letter or preapproval has included any HOA fees, and the amounts included for taxes, insurance and including flood insurance if applicable.

Ask questions, get all your facts, spend the proper time to get properly qualified and we will see you at a happy closing table.