The Difference Between Pre-Qualification and Pre-Approval
By Ellen Falk, Mortgage Banking Officer, Seacoast National Bank, Phone:
(772)342-7701, ellen.falk@seacoastnational.com
Pre-qualification is the first step in obtaining mortgage financing. A potential
borrower answers a few questions to provide the loan consultant with a quick
snapshot of the borrower's income, existing debt, accumulated savings and
whether or not there is a co-borrower. Signature(s) allow the loan consultant to
run a credit report and begin to determine what loans are good candidates for
this particular client. However, there are literally thousands of loan programs
available. It is important for the loan professional to know the long-term
financial objectives of the prospective homeowner.
Pre-approval is a
written documentation that proves the borrower has full support of a lender. It
means the form 1003 Uniform Residential Loan Application has been completed and
reviewed by an underwriter. Based on the borrower's income, debt ratio and
savings, the underwriter will provide a dollar amount this borrower is eligible
for. Now the borrower has the convenience of shopping for a home in the price
range agreed upon by the lender.
Pre-approval allows potential homeowners
to shop as cash buyers, and that means negotiating power. Sellers will take an
offer from a pre-approved shopper much more seriously and may even accept a
lower bid because they know the financing is in place and the deal is
secure.