The difference between Pre-Approval and Pre-Qualification has always been vague. It really comes down to a matter of degree where the line is drawn. The line certainly been blurred within the last few years with changes Congress and HUD have made to the regulations that cover disclosure.Let’s look back before we move forward. Lenders require certain information to fully approve a Borrower. We will call it the investigation or CIA (pun intended) part of an approval. C is for Credit, I is for Income and the A is for assets. You complete an application with a Lender/Broker either formally in writing or verbal over the phone. The level of investigation or verification determined whether it is a pre-approval or pre-qualification but there is no set standard of the definitions. This meant that Lender 1 may issue a Pre-approval based solely on stated info from the borrower such as credit score, income and assets. Lender 2 may require that they pull a credit report and that you furnish a pay stub, W2 and or tax returns along with proof of assets before they issue a pre-approval or pre-qual. Lender 3 may obtain all the same info as Lender 2 but will also submit the file to Automated Underwriting. Any of these would still be subject to Underwriter/Lender overlays, possible PMI overlays, Title and appraisal issues that could derail your final approval. This is the reason many Realtors require you to talk to their local lender that they trust. It is also not uncommon for a Builder or Bank owned property to ask that you also talk with their Lender. Half the Pre-Approvals/Pre-Quals are not worth the paper they are on.
The rules have changed on what even constitutes and application. HUD requires these 6 things:
Requested loan amount
Estimate of property’s value
Gross monthly income per borrower
Each borrower’s social security number (for the implied purpose of pulling a credit report)
These items are required to provide a GFE or Good Faith Estimate in writing which should be part of any pre-approval or pre-qual. Property address? If you don’t have a house yet then how can a Lender complete a pre-approval?
Technically speaking there is no such thing as a true pre-approval and anything done before you have a signed agreement of sale is a pre-qual.
Reality is people still call it either. PROTECT YOURSELF! A bad pre-qual or pre-approval does you no good if your deal falls apart. Be wary of some out of state online lenders. The actual Lender/Bank can be anywhere but they should have local loan officers or Brokers to assist you! I prefer a Broker because your total cost is generally less and they will have multiple sources and more options available. No matter where you go make sure you get complete disclosure on the products and pricing in writing and compare that to an estimate from your Realtor to make sure it is acurate!
So you have successfully gone through the Norstar University and should have a pretty good idea if Home Ownership is for you. If you are ready then we would like to offer you a FREE Pre-Approval (Qual).
No Cost, No Hassel, No Obligation
You will have 3 options… 1. Complete the 1003 Mortgage Application securely online… 2. Call Norstar and we can help you over the phone… 3. You can print a copy of a 1003 Mortgage Application if you would like to review, complete and e mail or fax to us. (no info required, it’s FREE)….Click Below.