The housing market is warming up in many areas, with multiple offers becoming more commonplace. Buyers who want an advantage in the bidding process will need more than a mortgage prequalification – they will need a preapproval.
The differences between mortgage pre-qualification and pre-approval are significant. Pre-qualifying for a mortgage is based solely on what a borrower discloses to the loan officer or broker about his/her earnings, credit score, and total assets, including what is available for a down payment. By contrast, a pre-approval requires a borrower to provide documentation of his/her income and assets.
The lender typically pulls the borrower’s credit report and score, while the borrower gathers together almost everything else needed for the actual mortgage underwriting: W-2 wage statements; 1099s; recent pay stubs; bank statements; and statements from Individual Retirement Accounts and 401(k)s; and other assets that could show the borrower has the resources to buy and maintain a home.
At one of the country’s largest mortgage lenders, Wells Fargo, the first quick review provided by an underwriter constitutes an agreement to lend. Other lenders may treat preapprovals as more of an opinion on the person’s ability to borrow, not a guarantee to lend.
With so many homes receiving multiple offers, a preapproval is more important in today’s marketplace. The preapproval letter should include the amount a borrower is qualified to borrow, as well as the loan officer’s contact information. Some letters may have an estimated monthly payment, but details about the loan time and interest rate are not included.
Timing also is important. Buyers should aim for obtaining a preapproval letter from a lender within 30 to 60 days of the expected purchase date. That is because some letters expire in 90 days.
We have our favorite lenders (including Ken Malamud of PNC Mortgage at firstname.lastname@example.org) who are on-hand to assist with pre-approvals. Before we ever show even one property to our committed buyer clients, we make sure to be armed with a full pre-approval letter which includes DU (direct underwriter) findings.
Since we also have a role as sellers’ agents, we also know what to look for in a buyer’s offer package. We always make it a point as a courtesy to buyers’ agents to let them know what they can do to strengthen their offers and our recommendations often include a request for the buyers’ DU approval. Our sellers love this too because it allows them an opportunity to know mlre in-depth that they buyers they’re committed to selling ther home to has a stellar chance of actually closing the purchase…