Pre-Qualification Letter Versus A Pre-Approval letter

Does it matter if the buyer has a pre-approval letter or a pre-qualification letter when reviewing an offer on your home? Most definitely it does. There are many factors that play into the difference and can affect whether the buyer can actually purchase the home. A pre-qualification letter basically states that the buyer is pre-qualified to buy a home up to X amount fo dollars using a certain type of financing. In those cases the bank has most likely pulled their credit to ensure they qualify with credit score and has verbally asked them for income and issued the letter accordingly to what the buyer has told them. A pre-approval letter on the other hand is in some respect the same as a pre-qualification letter but in those cases the mortgage broker has looked at paystubs or tax returns (if self-employed) and has approved them for X amount of dollars based on physical evidence of their income and expenses. So, why does it matter? There are a lot of reasons why it can make a difference when someone is looking to buy a house. Most mortgage brokers will only issue a pre-qualification letter until the buyer finds a house then do the necessary paperwork to ensure they qualify. In these cases they are doing an injustice to the buyer and the seller. What if the buyer said I make $3000 a month and the mortgage broker pre-qualifies them for a house based on that and they go under contract. the seller has taken the house off the market while the buyer is working on the loan paperwork and losing potential showings and qualified buyers. Now, part of that $3000 is overtime pay. it is not a consistent thing and has gotten it this year because of work and not enough qualified people; however it may not continue. Then the overtime may not qualify as income for the buyer and that could make a difference in their affordability of buying the house. Or what if the buyer is self-employed or works on commission or tips. They may be having a great year and said I make $3000 a month this year. But their last two years average has only been $2000 a month. On self-employed the banks look at their two year average of the previous years to qualify them for a mortgage. Not what they are currently making now. Even then you may not be on commission for a full two years, or what if they have switched jobs and careers in the past few months. These are all factors that can have an impact on their qualifications for a mortgage. This is just one part of the equation that plays a part in pre-qualification and pre-approval. There are many other factors. Such as bank accounts, where the money for down payment si coming from and debts that they have all paly a factor in their qualification for a mortgage that may not come up until they go for a pre-approval. I have seen a lot of transactions get delayed and cancelled because of these reasons and that the buyer's agent did not insist that the buyer get a pre-approval letter or the mortgage broker did not go through the necessary steps to ensure they could actually buy a house at that price point..... If you are selling a house ask your buyer’s agent to make sure you are getting a pre-approval letter when negotiating an offer...it could save you time and money. As a buyer you should always ask for a pre-approval letter. The last thing you want to do is find your dream home and then find out you cannot buy it..... Dave diCecco Realtor/Broker www.davedicecco.com