Prequalification is an Engagement - Preapproval is Marriage

There are some key differences between prequalification and preapproval for a loan that you need to be aware. A good way to see this difference is to look at being engaged vs. being married.

Loan prequalification is a simple process. It takes into account very basic information regarding your financial status and gives you an amount for which you may qualify. It's like an engagement in that someone is promising to make a commitment of marriage to you, but hasn't taken the final step.

Preapproval is a much more involved process. The lender will take all pertinent information regarding your finances and perform an extensive check on your current financial status. This will ultimately give you the exact amount that you will be eligible for (depending on what type of loan you decide to go with). Being preapproved lets the seller know that you have gone through an extensive financial background check and there should be no unexpected obstacles to buying the home. Like marriage, it is the final step of commitment.

In today's real estate market, you must be preapproved for a mortgage before you can begin house hunting. If your agent is telling you different, you are being set up for many heart breaking disappointments!!!

Credit Reports and FICO Scores

Before applying for a mortgage, you may want to request a copy of your credit reports to ensure accuracy. There are instances where information can be filed on your reports in error. There may also be entries that you want to clear up prior to applying, since they may have a negative impact on the amount or terms of mortgage granted. It can also help when negotiating mortgage terms if you know your credit profile before beginning the application process.

Three main credit report agencies exist. Since these agencies pull information from different sources, you may find inconsistent information between agencies. The application process involves a credit check from any of these reporting agencies. For that reason, it’s advised that a credit report be requested and evaluated for accuracy from each agency. The three agencies are: TransUnion (800-226-6214), Equifax (800-685-1111) and Experian (800-311-4769)

When determining credit worthiness, your FICO score is often used in conjunction with the credit report to build your credit profile. This information just recently became available to consumers. You can learn more about FICO and find out your score here: http://www.myfico.com. Other sites which offer scoring information include: http://www.creditscoring.com, http://www.knowyourscore.com, http://www.fairisaac.com and http://www.icreditscore.com.

Is Your Pre-Approval Worthless?!?

A new national research study confirms that many of the preapproval letters offerred by buyers of homes are flawed and the number one reason transactions don't close.

The agents interviewed for the survery stated Internet-based lenders' preapprovals as the worst: 39 percent of their letters are "invalid" ! They were issued to buyers without any authentic evaluation of the buyers' credit reports, income or assets. Also, one out of three of all preappovals issued by mortgage brokers also are based soley on the borrower's word and not on confirmed facts. One out of every five preapprovals issued by national lenders are in the same category as well

What must be in a preapproval? It needs to be VERY CLEAR about what information has been checked and verified:
* credit - FICO score
* employment- salary, length of time
*cash on hand for closing costs etc

And it must state exactly about whether the borrower has been preapproved for a mortgage in a specified maximum amount at a specified interest rate and subject only to an appraisal.

BEFORE you go shopping for a home, get a REAL preapproval or face disappoint and frustration at losing homes.

The data relating to real estate for sale on this website appears in part through the TReND Broker Reciprocity^SM program, a voluntary cooperative exchange of property listing data between licensed real estate brokerage firms in which Keller Williams Preferred participates, and is provided by TReND through a licensing agreement. The information provided by this website is for the personal, non-commercial use of consumers and may not be used for any purpose other than to identify prospective properties consumers may be interested in purchasing. Property locations as displayed on any map are best approximations only and exact locations should be independently verified.