Difference Between Pre-Approval Versus Pre-Qualification

Difference Between Pre-Approval Versus Pre-Qualification

Gustan Cho Associates are mortgage brokers licensed in 48 states

This BLOG On Difference Between Pre-Approval Versus Pre-Qualification Was Updated On November 25th, 2018

Home buyers can go to  www.gustancho.com and click on the FAST QUOTE icon on the top RIGHT section and complete and submit the questionnaire, they have started the pre-qualification process.

  • FAST QUOTE is a simple one-page questionnaire mortgage applicant complete
  • Q loan officer will get back to them
  • Difference Between Pre-Approval Versus Pre-Qualification is that a pre-qualification is more general and not intense like a pre-approval process
  • Loan Officer will qualify the borrower over the phone
  • They will ask them certain questions with regards to income, credit, debt, and public records
  • Once borrowers are pre-qualified, they can proceed to the next phase of the mortgage process which is the pre-approval process

In this article, we will discuss and cover the Difference Between Pre-Approval Versus Pre-Qualification.

Starting Pre-Approval Mortgage Process

What is the difference between pre-qualification and pre-qualification

To get pre-approved with Gustan Cho Associates, borrowers need to click the APPLY NOW icon on the top right and complete the four-page online secured mortgage loan application:

  • Once they complete and submit the online mortgage loan application, they will be contacted
  • Whether myself or one of my loan officers will go through the loan application and get the pre-approval mortgage process started

Key Difference Between Pre-Approval Versus Pre-Qualification

There is a Difference Between Pre-Approval Versus Pre-Qualification:

  • Loan officers will run credit, review tax returns and W2s
  • Go over the borrower’s past 30 days paycheck stubs, and run the file through the Automated Underwriting System prior to issuance of pre-approval
  • The Difference Between Pre-Approval Versus Pre-Qualification is with a pre-approval, the borrower is ready to enter into a real estate purchase contract

Whether it is a purchase or refinance, the process is the same.

Qualifying Borrower And Co-Borrowers

The loan officer will go over the basic income and expense of borrower, as well as the co-borrower:

  • We will be going over credit situation and assets as well as liabilities
  • I will then tell you what you qualify for and the basic terms and rates. 
  • Borrowers will know whether you qualify for a mortgage with a prior bankruptcy or foreclosure or whether they need to wait. 

If the borrower’s credit is bad or does not have qualifying credit scores, they will be advised on how to repair and boost credit scores.

Qualifying For Mortgage With Judgments And Tax Liens

Borrowers with judgments, the loan officer will instruct on how to negotiate the judgment or make payment arrangements in order to qualify for a mortgage:

  • Loan officers can help borrowers correct errors on credit report
  • Borrowers can qualify for a mortgage with judgments and outstanding tax liens
  • Need written payment agreement from judgment creditor and/or IRS
  • Need three months of timely payments started and seasoned

Waiting Period After Bankruptcy And Foreclosure To Qualify For Mortgage

How to qualify for a mortgage with judgments and tax laws

There are mandatory waiting periods to qualify for home loans after bankruptcy and/or foreclosures:

  • There is a waiting period of 2 years for folks who filed bankruptcy from the discharged date of Chapter 7
  • Borrowers who just filed bankruptcy can start re-establishing their credit
  • Homebuyers under a Chapter 13 Bankruptcy Repayment period can qualify for FHA LOANS one year into their Chapter 13 Repayment period with Trustee approval

There is no waiting period to qualify for FHA LOANS after Chapter 13 Bankruptcy discharged date.

Qualifying For Mortgage After Housing Event

Homebuyers who had a prior foreclosure, short sale, or deed in lieu of foreclosure, there are mandatory wait periods on government and conventional loans.

  • There is a waiting period of 3 years from the date the deed of the foreclosed home was transferred out of your name to the bank’s name or the date of the sheriff’s sale on FHA and USDA Loans
  • VA requires a 2-year waiting period. Conventional Loans is 7 years after standard foreclosure
  • 4 years after a deed in lieu and/or short sale

There are no waiting period requirements on non-QM loans after housing event and/or bankruptcy.

Recorded Versus Surrender Date On Prior Housing Event

The deed transfer date is extremely important:

  • Just because homeowners turned keys in and got a receipt by a lender does not mean that is the date of the foreclosure and the clock started ticking
  • The wait period clock starts ticking from the date of the official transfer of the deed out of the name of the borrower and to the name of the lender or the new owner of the property
  • There are so many cases where the homeowner turns in keys and their home is foreclosed but the bank is in no hurry to transfer the deed to their name
  • It might be five years before the bank transfers the deed 
  • The 3-year waiting clock starts ticking at the 5-year mark

Getting Approved And The Difference Between Pre-Approval Versus Pre-Qualification

Once home buyers are pre-qualified for a loan, the next step is to get pre-approved if they are planning on purchasing a home.

  • There is no reason why borrowers who are issued a pre-approval not to close on their home loan
  • The final step of the mortgage process is clear to close which means that the lender is ready to prepare closing docs and fund the loan
  • The main reason for last-minute mortgage loan denial or stress during the mortgage process is due to the fact that the loan officer did not properly qualify borrowers
  • Most residential loans close in 30 days or less after the borrower has signed the disclosures

With a constant stream of new lending guidelines, volatile mortgage rates and tightening regulation from Washington, very few real estate agents will show new homes to a potential home buyer without at least a pre-approval letter.

Benefits And Difference Between Pre-Approval Versus Pre-Qualification

How to get accepted and what is the difference between pre-qualification and pre-qualification

  • It states the loan amount and rates and terms the borrower is qualified for and the type of loan program: FHA, VA, USDA, CONVENTIONAL, NON-QM, JUMBO, INVESTMENT HOME LOAN
  • It gives borrowers estimate of what the total monthly housing payment will be, which includes taxes, insurance, and homeowner association dues if any

Submitting a strong “Pre-Approval” letter with a purchase offer will let the seller know you are a serious and strong buyer and will take your offer seriously and start the negotiation process.

Common Loan Pre-Approval Documents Required

In order to start the mortgage process, there are certain documents that are required.

Here is a list of documents required to process mortgage

Income / Assets for Wage Earner:

  • Last 2 year W2s and Tax Returns
  • 2 most recent Pay Stubs
  • 2 most recent Bank Statements, 401(K), Liquid Assets, Investment Accounts

Income / Assets for Self-Employed:

  • Last 2-year Tax Returns – Business and Personal
  • Last Quarter P&L Statement

Letter of Explanation For:

  • Employment Gap or New Line of Work.
  • Late Payments / Judgments / Bankruptcy on Credit Report.

Other Documents Needed:

  • Bankruptcy Discharge is it applies to the borrower
  • Foreclosure paperwork if it applies to the borrower
  • Child Support Documentation if it applies to the borrower
  • Lease Agreements if you have investment rental income
  • Mortgage Payment Statements if you own other residential or investment properties

Ask a lot of questions and make sure your loan officer is available at all times

Borrowers need to feel comfortable with communicating with your loan officer

  • Borrowers should ask your loan officer as many questions as possible
  • A loan officer should be available 7 days a week and should always promptly return all of your calls
  • Loan officers are extensively regulated and the majority of licensed mortgage loan originators will act on the client’s best interest

If you are looking to obtain a home purchase loan or a refinance loan, feel free to contact us at 800-900-8569 or text for faster response. Or email us at gcho@gustancho.com.  We are available 7 days a week.

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