Understanding the difference between Pre-qualification vs Pre-approval and eliminating media confusion.
So often we get that letter, post card, or even an email saying “you’re pre-approved” but how can they really say that and what does it mean to me and you the consumer? These all seem to come in the mail just after we make a purchase on an item via credit.
Purchase a car or boat; apply for the credit card at your favorite clothing store or furniture store and within a week your mail box is full.
I wanted to see where the disinformation comes from so I searched the internet in order to help put together a better understanding for you the consumer of the difference from mail propaganda and the reality of the lending industry.
The Junk-Mail Pre-Approval Myth
Generally, these mailings come from companies who have purchased a list of marketing leads. These leads are paid for by companies who may purchase names from the credit bureaus, credit card companies’, auto retailers, etc. Even if you just inquire on an item, that information may be sold to other retailers and credit providing companies, as someone with interest in purchasing something.
This information most always never contains your credit information or your income, yet they use the term pre-approval or pre-qualified as though you are ready to purchase their product. When in reality, you are just a warm blooded consumer with a previous interest to purchase something. In other words, you may be ready to buy something. So they hit you with an emotional sales pitch while you’re in the mood, leaving the terms pre-qualified or pre-approval as only an emotional tool to luring you into their place of business.
Here is an example I actually recieved the morning I wrote this section. You can see that it states ‘Pre-Approved’ on the envelope.
Pre-qualification or pre-qualification letter is a loan originator or bank’s registered representative’s estimate of how much a consumer could be eligible to borrow, based on information they have supplied. Pre-qualification does not mean they will get the loan. Pre-qualifications can vary in strength, as determined by how much of the information provided by the consumer has been verified. Did the loan originator (LO) or Bank’s representative pull the consumers credit report and verify income, or did they just go by the word of the consumer? This pre-qualification only scratches the surface of the consumer’s ability to get a loan. Basically, it’s just a start that there is a possibility for financing–nothing more.
Pre-approval usually means that the decision maker for the lender, generally the underwriter or assist underwriter, is conditionally ready to move forward in making you a mortgage loan based on the information and documentation you provided at the time that your loan application and the documentation that was submitted to the lender.
Most lenders do not issue pre-approvals, but rather conditional approvals. If you see a pre-approval with conditions, chances are it came from the assistant underwriter–who is looking to eliminate more conditions before submitting your loan file to a senior underwriter. Once a senior underwriter issues the conditional approval, this will say how long it is valid for and what conditions must be met in order to issue a ‘clear to close’ on the mortgage loan.
At Solutions First Mortgage Inc. we do our best to give you the best information possible for you to understand the mortgage loan process. We use our experiences to help provide you with this information only to help assist you and it is not intended to be used as legal advice. We always recommend our clients seek a real estate attorney for all real estate and mortgage loan transactions.
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