Pre-Qualifications vs. Pre-Approvals
If you've ever considered making an offer on a home, you were probably advised by your real estate agent to get pre-qualified, or better yet, pre-approved first. Many people think these two mean the same thing, but they don't. So what's the difference?
Getting pre-qualified simply means that you've spoken to a loan officer, answered some basic questions such as:
Where do you work?
How much do you make per month?
What are your monthly debt payments?
How much money do you have for down payment, closing costs, and reserves?
What is your credit profile like?
A pre-qualification does not verify any of this information. The loan officer simply takes what you say at face value and determines how much you can qualify for based on those figures. Pre-qualifications can be done in a few minutes over the phone or the internet since none of the information is actually verified. If the numbers and estimated credit profile provided are correct, your pre-qualification will be fairly accurate, however, not nearly as accurate as a pre-approval.
Getting pre-approved can also be done fairly quickly, however, this involves thoroughly reviewing your income and asset documents, pulling a credit report, and running our automated underwriting system (AUS). At a minimum, the loan officer will need to review the following documents:
Most recent 2 years federal tax returns (corporate returns too if self-employed)
Most recent 2 years W-2s
Most recent 30 days paystubs
Most recent 2 month's bank statements for all major asset accounts (include all pages)
Most recent quarterly statement for all investment accounts (401k, IRA, Stocks, and Bonds etc.)
Reviewing all of your documents means we can be very confident that, if we were to submit your application for a mortgage, you would be approved for the loan amount we say you are approved for. It can be trickier for certain borrowers with complex income sources, since mortgage underwriting methods and allowances can vary from lender to lender, and we can't always be sure the underwriter will review a file the same way the loan officer has. In these cases, we may be able to submit the loan for a "TBD Approval."
A TBD Approval means that we have submitted an actual application with all supporting documents, but without a purchase contract. The property to be purchased is "to be determined," hence the name. This allows the lender to fully review the file as if it was an actual purchase loan and issue a pre-approval letter, usually good for 90 days. Then, after you find a property you like and go into contract, I can simply "plug in" the information for the new property, upload the purchase contract, and move to closing as soon as possible.
Why Does It Matter?
As you can imagine, a buyer who has gone through the pre-approval process is much more prepared than a buyer who has only be pre-qualified. If you are going to make an offer on a property, you can strengthen your offer with a solid pre-approval letter from McKay at C2 Hawaii. Because I was a former underwriter, my pre-approval process is much more complete compared to loan officers with basic knowledge.
When a seller reviews their offers, they are much more likely to accept offers from those who have been pre-approved. In today's seller's market, pre-qualification letters are essentially worthless, since most buyers who are well-informed will be pre-approved first.
In addition, going through the pre-approval process can strengthen your offer further by allowing a shorter closing period. Since I've already reviewed a majority of your loan documents, there should be no surprises or delays in the process. This means we can likely complete the entire loan process within 30 days. A seller reviewing offers is more likely to accept an offer from a buyer who says they can close in 30 days versus a buyer who will need 60 days or longer to close.
Aside from strengthening your purchase offer, getting pre-approved allows the loan officer time to be creative with your financing. Can't qualify for a high enough amount? Maybe we can restructure some debt first. Credit score too low? Let's see how we can raise your score to get you into better loan terms. Getting pre-approved as early as possible can only help you, so click on the Apply Online link at the top of the page today to get started!