Proving You Can Perform
Pre-Qualification vs. Pre-Approval
by Craig Goebbel
President & CEO, LoanTek, Inc.

The dynamics of shopping for a home can be daunting. You, and your realtor spend a great deal of time searching for and viewing properties. Then you grapple with making the offer, negotiating until you have a deal. None of this makes any sense unless you know you can perform. Unless you are paying with cash, this means “Is your financing in place?”

Pre-Qualification
This is a relatively simple process, often accomplished over the phone. You tell your lender how much you make, owe and have saved. They do the calculations based on this information and give you a qualifying price range, based on that day’s rates and the loan program you prefer. Although this may give you peace of mind or confirm your own conclusions, pre-qualification is nearly worthless. Why? Because none of the information has been documented and lenders only approve loans based on information verified with third-party documentation.

Pre-Approval
The fundamental difference between pre-qualification and pre-approval is documentation and review. Instead of just telling your lender the pertinent data, you provide the documentation. For example, you provide pay stubs and W-2s to verify income, bank and brokerage statements to verify your funds available for down payment. The documentation you provide depends on how you earn your money and your source of funds for down payment and closing costs.

After your lender receives all of the documentation and completes their review, they will issue a formal credit approval. With a formal credit approval, you know your financing is secured. This is important to you for peace of mind and your realtor also, because they know you are not wasting their time. Your pre-approval is crucial to the seller. It is easier to accept a less-than-full-price offer when the seller knows the buyer can perform. In a hot market when sellers are getting multiple offers, your offer will not even be considered if you have not been pre-approved. In a slow market a savvy seller will be more likely to accept a lower price if they are certain you have your financing in place and can close on time.

Getting Started and Getting It Done
You have more options than ever before to get the pre-approval ball rolling. Lenders today know you are busy and a face-to-face appointment may not be the best use of your time. Many lenders offer secure applications over the Internet, loan-by-phone and application via fax. Just follow-up with some documentation and viola, you have your approval.

© 1999 - 2004 LoanTek

Craig Goebbel is President and CEO of LoanTek.com, mortgage loan brokerage.  He is also producer and host of Real Estate Radio Show, a Seattle-based talk show featuring mortgage and real estate news, interviews and listener calls. It is broadcast on KVI Radio AM 570 in Seattle, Washington. Past show are also webcast via the Internet at http://www.realestateradio.net.

Real Estate Radio Sponsor

Real Estate Radio with Goebbel and Gray is the leading real estate radio talk show in the world and is hosted by Real Estate home mortgage expert Craig Goebbel, owner of LoanTek Home Loans and Robb Gray of John L. Scott Real Estate.