Pre-Approved Beats Pre-Qualified

by John Schleck, PNC Mortgage Corporation

The home buying process can be complex. But borrowers can save a great deal of time and frustration by speaking with a mortgage broker or lender before they begin shopping for a home. Seeing a mortgage professional in advance will help borrowers determine the price range they can begin to look for based upon the loan size that fits their budget.

Many lenders offer "pre-qualification" programs, which seek to give borrowers an idea of the size loan for which they can qualify. However, these programs may be misleading because they review only the homebuyer's income and credit rating and are not reviewed by the mortgage company or bank's underwriting staff. Because these type of "pre-qualification" programs provide a borrower with a monthly payment based on limited information, the buyer, real estate agent and seller may have the mistaken impression that the mortgage is formally approved. In some cases, however, after a sales contract has been written and accepted, or after weeks of processing of the loan, the borrower learns that he or she does not actually qualify for the loan.

Borrowers can avoid this type of frustration by obtaining what is known as a "pre-approval" that is underwritten. Many lenders will provide a borrower with a letter good for up to ninety days after reviewing the borrower's credit and income with the underwriting department. This letter can improve the buyer's negotiating position with the seller. The monthly payment stated in the letter generally includes loan principal, interest, taxes and insurance, thus giving all parties involved in the transaction a clear picture of the buyer's financial position.

The loan officer hand delivers the approval letter to the buyer and real estate agent, enabling buyers to proceed with their home shopping with the confidence that he or she has a guaranteed loan. The approval letter also indicates to the seller and listing agent that the borrower has obtained a legitimate early approval. So, when shopping for a mortgage, homebuyers should be sure to ask whether the pre-qualification program offered by the lender or broker is actually underwritten. Finding one that is can help simplify the home buying process.

John Schleck is Connecticut regional manager with PNC Mortgage of America, based in West Hartford, Connecticut.

Home