Difference Between Mortgage Pre-Approval Versus Pre-Qualification

Difference Between Mortgage Pre-Approval Versus Pre-Qualification

This BLOG On The Difference Between Mortgage Pre-Approval Versus Pre-Qualification Was UPDATED On January 2nd, 2018

The difference between a mortgage pre-approval versus pre-qualification is that a mortgage pre-approval letter is issued by an underwriter after the loan has been fully underwritten.

  • Unfortunately, many loan officers issue pre-approval letters without the file being processed and underwritten
  • The way mortgage companies issue pre-approvals vary from lender to lender
  • The Gustan Cho Team at USA Mortgage is a direct lender with no overlays on government and conventional loans
  • All pre-approvals are fully underwritten as TBD Underwriting Properties and are issued and signed off by one of our underwriters
  • This is the reason why The Gustan Cho Team at USA Mortgage closes 100% of all our mortgage pre-approvals. Our pre-approvals are full credit approvals/loan commitments

A pre-qualification is when a mortgage loan originator will go over the basics of the mortgage loan borrower as the following:

  • Income
  • Monthly debts
  • Liabilities
  • Assets
  • Credit report
  • Credit history
  • Credit scores
  • Pre-qualification letters are often worthless because they are not verified information by the mortgage underwriter
  • Someone can get a pre-qualification letter after a verbal one on one consultation with a licensed mortgage loan originator
  • The loan officer will just go off the information given to him by the borrower without a mortgage underwriter reviewing the borrower’s tax returns, W-2s, bank statements, and other documents
  • A mortgage loan borrower can make $40.00 per hour full time and have sufficient income
  • But write off the majority of his income on his tax returns where it makes him not qualified for a residential mortgage loan

What Is A Pre-Qualification

A pre-qualification is to see whether the mortgage loan borrower can proceed further to the pre-approval stage.

  • A pre-qualification will determine what mortgage loan program you qualify for: 
    • Conventional or FHA? 
    • A pre-qualification will determine what the maximum loan amount you will qualify for and how much house you can afford? 
    • A pre-qualification will determine whether you need a non-occupied co-borrower?  
    • A pre-qualification will determine how much down payment you will need and how much your closing costs will be

Once borrowers are pre-qualified and are ready to purchase a home, they can then move up to the pre-approval process which does not take too much time.

Pre-Approval Versus Pre-Qualification: Pre-Approval Letter

A mortgage loan originator will issue a mortgage loan borrower a pre-approval letter once the borrower has completed a 4 page 1003 mortgage loan application and has authorized the loan officer to run a tri-merger credit report.

  • The mortgage loan originator will then verify the following:
    • Income
    • Assets
    • Debts
    • Liability
    • Credit information to make sure whatever the borrower listed is correct
  • The mortgage loan originator will most likely ask for mortgage documents required to process loan such as two years tax returns, W-2s, and most recent paycheck stubs to confirm income information
  • Providing tax returns is very important because even though the mortgage loan borrower is a W-2 wage earner
  • The loan officer needs to see what types of write offs the borrower wrote off on his or her tax returns
  • If the borrower wrote off too much, that needs to be deducted from the monthly gross income they have stated on the 1003
  • A big write off on tax returns can really affect the borrower’s back end debt to income ratios and could affect the outcome of the mortgage underwriter’s decision

Automated Underwriting System

Once the loan officer has analyzed and reviewed the borrower’s overall financial and credit profile, he or she will then submit the borrower’s mortgage application to Fannie Mae’s Automated Underwriting System for a DU FINDING.

  • If everything works out, the borrower will ge an approve eligible per DU FINDINGS
  • A pre-approval is then issued and the borrower can take the pre-approval and start shopping for a home and can enter into a real estate purchase contract

Home Buyers or Homeowners needing to qualify for mortgage with direct lender with no lender overlays can contact The Gustan Cho Team at USA Mortgage at 262-716-8151 or email us at gcho@usa-mortgage.com. We are available 7 days a week, evenings, weekends, and holidays. All of our pre-approvals at USA Mortgage are full credit approvals signed off by our mortgage underwriters.

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