Difference between a Mortgage Prequalification letter and a Preapproval letter?

Difference between a mortgage prequalification letter and a preapproval letter? This is a timely blog from our preferred lender, Dan Tharp with Guild Mortgage. Enjoy, JaCi Wallace.

If your lender’s approval letter is not worth the paper it’s written on, it has no value. Unfortunately, this is something Realtors and sellers know all too well. And in an extremely hot seller’s market, you need to make sure your offer, among many others, will stand out!

Don’t worry about which word lenders use. For example, some lenders use “prequalification,” while others call the letter a “preapproval.” What matters is not what they call the letter, but instead the process they went through before giving you that letter. In reality, lenders’ processes vary widely, and some indeed are not worth the paper they are written on.

A prospective buyer can complete a loan application and have an approval letter within minutes without providing any stitch of personal documentation. And this may be a solid approval, even if an underwriter has not touched the file, because the lender uses third-party verification. Unfortunately, not every bank offers this, and it does not work for all borrowers given their employment or banking situations, but LET’S BE CLEAR. Every buyer should be aware of this game-changing technology. Third-Party Verification is the process through which a Borrower’s employment, income, and asset information are verified directly by the Mortgagee with a borrower’s employer or financial institution through the services of a third-party vendor. An approval letter based on this technology is a powerful letter. But how do you know if the lender took these steps? You don’t unless you ask.

Another sleight of hand lenders will employ (if they don’t have third-party verification) is to tell you that you don’t need an underwriter to preapprove your loan before shopping for that new home because they have Fannie or Freddie AUS approval (Automated Underwriting Approval). As a 20-year mortgage veteran, I can submit your loan application directly to Fannie or Freddie and get an approval letter within seconds. But it means ZERO if I did not correctly validate or verify your employment, assets, or income. So, again, I repeat, “If your lender’s approval letter is not worth the paper it’s written on, it has no value.” 

3 KEY STEPS to get your offer Accepted

Get an actual consultation: At Guild, we have coined our process, high-tech, high-touch. Meaning, we try to meet with every client to help them build a strategy to compete in this current market and give them all the tools necessary to make this life-changing decision. Buying a home is one of the most stressful events in anyone’s life, and I would rather have the buyer well prepared before they make their first offer.

Build Your Mortgage/Realtor A-Team: Make sure your realtor and your lender are in sync and collaborate on your behalf. Working together is a good thing, but you need your A-Team to work for you, NOT THE SELLER. Your team must be strong communicators, especially in a time-sensitive environment. They should set realistic expectations early to minimize stress, calm fears, and build the trust necessary for a successful close. Finally, and most importantly, your team must have integrity and share similar work ethics, values and experience. When goals are set and reviewed in detail, it keeps the team focused and accountable to close your transaction. A good team never forgets this.

Pre-underwrite at Application: This means a human being, an actual underwriter, is signing off on your income, assets, and credit so that we can tell the sellers your approval is done, and all we need now is a signed contract and an appraisal. The fear something will derail the transaction is instantly gone, and knowing your transaction will close very quickly will jettison your offer to the top of the pile and improve your chance that the seller will choose your offer.

Guild’s Credit Approval Protection* program can give your bid a boost because it gives added confidence in Guild’s preapproval process. If Guild issues a preliminary underwriting credit approval and cannot close on the borrower’s loan, we will pay the borrower up to $1,000 for inspections, appraisals, and relocation expenses. Guild will also reimburse the borrower for their lost earnest money deposit, up to $5,000.

*For full terms and conditions, visit: guildmortgage.com/cap-hbe-terms/

The above information is for educational purposes only. All information, loan programs, and interest rates are subject to change without notice. All loans are subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.

If you want to be pre-approved call, Dan Tharp. If you want to buy a property or sell a property, call Weintraub & Wallace Realtors with RE/MAX Gold Real Estate at 916-233-6759.