This BLOG On What Is The Difference Between Pre-Qualification Versus Pre-Approval Was PUBLISHED On July 22nd, 2019
Most borrowers often get confused about the Difference Between Pre-Qualification Versus Pre-Approval.
- Sellers real estate agents will normally not accept an offer from a home buyer without a solid pre-approval letter
- There is a big Difference Between Pre-Qualification Versus Pre-Approval
- A pre-qualification of a borrower is the first stage of the overall mortgage process
- The first step in proceeding in the mortgage process is the pre-qualification stage
- The pre-qualification process starts with the initial phone call to the loan officer
- It is normally a phone interview
- Every loan officer has different ways of pre-qualifying a borrower
- Some loan officers are more thorough with the way they pre-qualify a borrower
- While other loan officers do not issue pre-qualification letters but just skip this step and will pre-approve a borrower
How Long Does Qualification Process Take
The pre-qualification process normally takes about 30 minutes:
- It is a series of questions that the loan officer asks the borrower
- Once a loan officer feels confident that the borrower pre-qualifies and fits a certain loan program, the loan officer can then issue a pre-qualification letter
- Or move to the next step, which is getting the borrower pre-approved
- Questions asked during the pre-qualification mortgage process are the following
- On this BLOG we will cover the big Difference Between Pre-Qualification Versus Pre-Approval mortgage process
How Do Loan Officers Qualify Borrowers
Here are the basic questions being asked during the pre-qualification mortgage process:
- What city, county, state are you looking to purchase a home?
- Get a formal mortgage loan application, 1003
- Complete 1003
- While completing 1003, make sure to ask the questions below
- Are you self employed or W-2 wage earner?
- Are you hourly or salaried?
- The loan officer will ask for any other source of income such as the following:
- whether you get social security income
- receive pension income
- part-time income
- overtime income
- alimony income
- child support income
- or if you receive any other income such as royalty income
- Any other income such as part-time income, bonus income, overtime income, there is a two-year seasoning requirement in order to be able to use those types of income as qualified and verified income
- The likelihood of three years needs to be likely through a Verification of Employment
Income And Debts Of Borrowers Determines Debt To Income Ratios
The loan originator will question about minimum monthly debts. Auto loans, minimum credit card payments, minimum installment loans, student loan payments, deferred student loans, child support and/or alimony payments, and any other minimum monthly payments that show on your credit report are used in DTI:
- Are you the only borrower?
- Who is the co-borrower? (Ask the same questions about the co-borrower if the main borrower knows the information or if the main borrower does not know, take the information of the borrower and contact the co-borrower on a separate call)
- What is the market value of homes that you are shopping for?
- Estimated property taxes in area?
- estimated homeowners insurance in the area?
- Are there homeowners associations in the community AND what the HOA dues are?
- Is the location buyer is shopping for homes in a flood zone
- Do you know what the flood insurance premiums homeowners are paying?
- If the borrower does not know the above questions, the loan officer normally can get a good estimate of the above information
- The above information is important to calculate the borrower’s proposed housing payment
- This is important in the calculation of the borrower’s debt to income ratio
Shopping For Mortgage Lenders
During the pre-qualification mortgage interview process, the loan officer will ask about if borrower applied at another mortgage company. And if so, what issues they had with the other lender.
- Questions about credit will be asked
- Some questions are being timely on all of the payments in the past 12 months?
- Prior bankruptcy, short sale, foreclosure, and deed in lieu of foreclosure
- If so what are the dates
- Questions about judgments or tax liens
- Do you have any collections or charge off accounts
- Do you have any credit disputes
- The loan officer will also check to see if purchasing a home in a community property state
- If so, the spouse’s debts need to be included in the calculation of debt to income ratio
- This holds true even though the spouse is not on the mortgage loan
- The lender will then pull credit while you are on the phone to see if you meet the minimum credit score requirements
- A credit report does not reflect any derogatory items that can potentially affect chances of getting pre-approved
- The above is basically the pre-qualification process
The Pre-Approval Process
The Difference Between Pre-Qualification Versus Pre-Approval is that the Pre-Approval mortgage process is the most important stage of the entire mortgage loan process.
- Over 75% of the borrowers who contact us are folks who either had a last-minute mortgage denial or are going through an extremely stressful mortgage process
- The number one and ONLY reason for this is because they were were not properly qualified and pre-approved by their loan officer
- There is no reason why a borrower who has a solid pre-approval for them to go through a stressful mortgage process
- There is no reason why they should not just close their home loan but close the loan on time
- The pre-approval stage should be part two of the pre-qualification process
Mortgage Processing And Underwriting
After the borrower has been pre-qualified, the loan officer should proceed to the next step:
- Request the Documents Required To Process The Mortgage
- Thoroughly review the borrower’s credit report
- Go over line item per line item and question the borrower if there are any discrepancies
- Review public records
- Make sure that foreclosures and deed in foreclosures meet the mandatory waiting periods
- Review short sale paperwork
- Make sure that borrowers meet the mandatory waiting period after a short sale date
- Review 60 days bank statements
- Make sure there are no overdrafts in the past 60 days
- Check and double-check assets
- Make sure that the borrower has enough cash to close
- Make sure there are no late payments in the past 12 months
- If there are late payments, make sure to check with the underwriter
- See that it is okay even though you get an approve/eligible per AUS Findings
- If a borrower has late payments after bankruptcy, foreclosure, short sale, check with the underwriter
- Make sure it is alright even though you get an approve/eligible per AUS FINDINGS
- Most lenders will not lend to borrowers with late payments after Bankruptcy and Foreclosure
- This holds true even though they have an automated approval per Automated Underwriting System ( AUS )
- If a borrower has irregular income, overtime income, bonus income, part-time income, make sure the loan officer will get a Verification of Employment
- The reason is so that they are solid on the qualified income
- Especially for borrowers with higher debt to income ratio (DTI)
- Go over the borrower’s credit report with the borrower
- Make sure that there are no public records that the borrower is aware of that is not on the credit report
- Many times, judgments, foreclosures, short sale, deed in lieu of foreclosure, judgments, tax liens, delinquent government student loans, child support payments, alimony payments are not reporting on the borrower’s credit report
- All public records will get discovered
- This is because all lenders will run a third party national public records search through Lexis Nexis or Data Verify and it will get caught which can affect a mortgage loan clear to close
Again, there is major Difference Between Pre-Qualification Versus Pre-Approval. Pre-approvals may take some time depending on how complex the borrower’s credit and financial situation is.