Pre-Qualified and Pre-Approved Are Not the Same Thing

Sellers in this market read the loan letter before they read anything else. Most buyers do not know which one they have.

Pre-qualification

You tell a lender what you earn, what you owe and what you have saved. The lender runs the numbers and produces a letter.

Nothing has been verified. It is a projection built on what you said.

It takes fifteen minutes and it is worth roughly what it costs.

Pre-approval

The lender pulls your credit, collects your tax returns, W-2s, pay stubs and bank statements, and verifies everything. An underwriter reviews the file. The letter that comes out says the lender has looked and is prepared to lend, subject to the property.

It takes days rather than minutes and it changes how your offer is received.

Why the difference is worth money

Put yourself on the seller’s side. Two offers, same price. One buyer has a letter from an online form. The other has a letter saying an underwriter reviewed the file.

You take the second one. Everybody does.

Which means the buyer with the weaker letter has to make up the difference in price, and it is usually more than the inconvenience of gathering documents would have cost.

What I ask lenders

Has this file been through underwriting or is this a preliminary letter? Have you verified income and assets, or has the borrower stated them? What conditions remain?

I ask before we write, and I tell the listing agent the answer when I submit, because it is a selling point.

A note on where you get it

Use a lender who will answer the phone on a Saturday. Deals in this market frequently need something from the lender on a weekend, and a large online lender that closes at five on Friday can cost you a house.

I will introduce you to two or three I have closed with. You are under no obligation to use them and I receive nothing for the referral. It is your loan and your rate, and you should shop it.

Do this first

Before you tour anything. The house you want will come on a Thursday and go into contract by Sunday, and there is no time to get a letter in that window.

Call me at (310) 861-3459.