April 7th, 2013 9:05 AM by Taydus Taydus, AHWD, CNE, CRS, GRI
PREQUALIFICATION VERSUS PRE-APPROVAL
Lenders write a variety of different forms of letters to satisfy a Listing Agent’s request for a pre-approval letter.
The minimum requirement should be a pre-qualification letter that indicates that the lender has pulled credit for the potential buyers and reviewed their finances and that based on this information they are pre-qualified for the purchase of the subject property.
When I write a pre-qualification letter I ask the buyer’s permission to disclose their credit scores. As a Listing Agent I would require that the letter include the credit scores. The reason being is that with knowledge of the credit score and the down payment you have a very good idea of whether the borrower is qualified or not.
The weakness of the pre-qualification letter is that the analysis is based on what the borrower tells the loan officer. If the borrower forgets to tell the loan officer that they pay spousal maintenance from a divorce (or if you are receiving maintenance), or have only been self-employed for one year or that they just bought and financed a new car then the analysis is meaningless.
The second tier of letter would be the pre-approval letter. Typically a pre-approval letter is the same as the pre-qualification letter except that the lender has taken the time to input the information into the computer and submitted for an automated approval. The weakness once again is that the approval is based on undocumented information from the borrower.
The most accurate and reliable letter is a pre-approval letter that states that all the documents necessary for approval have been collected and reviewed. With the documents the lender can review the tax returns, bank statements etc. to insure that the information is accurate and nothing has been missed.
Realtors should suggest that any serious buyer speak with a local lender before starting the search process. This exercise accomplishes several things. It confirms that the buyer is serious, it allows the lender to establish the true purchasing power of the buyer, and provides the Realtor with the best approval letter possible.
Buyers are often reluctant to contact the lender upfront. If nothing else get them to consider speaking with a local lender who is established and respected in the real estate community.
Information provided courtesy of
Joe Taydus
Of Mutual Security Mortgage, Boulder
Please feel free to contact Joe with any questions, or for a free no obligation consultation regarding your financing options. 2129 13th St, Boulder – (303) 443-5575 Office – (303) 514-1151 Cell – Joe@MutualSecurity.com