Pre-Qualification vs Pre-Approval

Pre-Qual-Vs-Pre-approvedThe mortgage industry is full of insider buzz words that seem to have been created to beguile all but the most seasoned insiders, in fact this topic trips up even veterans of 20 years and more; Pre-qualification and Pre-approval.

This due largely because when these two terms originated many years ago it was simple, or at least the mortgage process was simpler. It was simpler in terms of compliance and technology. Originally,   Pre-qualification was just based upon some simple math and information used to determine the loan amount that the applicant(s) could qualify for using income and debts. Pre-approval was a more in-depth process of analyzing credit, assets and income by an underwriter and providing a decision as to whether or not a loan could be approved. Simple right?

Then came automation and something called Automated Underwriting where a computer using an algorithm arrived at a credit decision. Pre-approvals were simple and blazingly fast, but there was one small point that eventually became a big one, the data that was used in making the decision was not always accurate, so sometimes the Pre-approval was meaningless. During the time this was happening, it didn’t make much difference because it was at about that time when lending guidelines became, shall we say, beyond liberal and we all know now what that led to.

After the melt down in the mortgage industry, new laws designed to protect the consumer were adopted and the industry began to return to the more traditional method of             Pre-approving a borrower. Until another set of new laws came into play, which depended on the technology solutions and interpretations of these new laws by the lenders themselves. Many of the new laws are vague and guidance from regulatory bodies is either not provided nor clear. As  result many lenders have become reluctant to provide             Pre-approvals and opted to beef up their Pre-qualification standards where this would now include credit analysis and verification of income and assets prior to issuance.

While this could all change down the line, the best course is to be sure that your lender is doing a thorough review of your financial picture by asking what their process is to qualify you for a mortgage.

Happy House hunting!

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By Tim Hattan

 

About Trevor Hammond

As a veteran of the mortgage industry, Trevor Hammond is the co-author of "Borrow Smart, Retire Rich," a Certified Mortgage Adviser and a founding Faculty Member and Contributor to the National Institute of Financial Education (www.niofe.org). And he has provided thousands of homeowners with the clarity and confidence to make smarter decisions when it comes to their mortgages and money. In 2013 he launched an entirely new kind of mortgage company: Aspire Mortgage Group, which is committed to educating and empowering homeowners to increase savings, eliminate bad debt, and safely increase net worth. The specialized group of mortgage professionals at Aspire Mortgage Group have redefined what homeowners should expect from a mortgage company. To learn more about Trevor Hammond and our team of mortgage advisors please visit our website at www.aspiremortgagegroup.com or email Trevor directly: trevor.hammond@sierrapacificmortgage.com. Aspire Mortgage is a Sierra Pacific Mortgage Partner.
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