This time we cover what is the difference between Pre-qualification vs Pre-approval. When we have your home on the market and an offer comes in the Kodiak Bear Group will require a Pre-Approval or Proof of funds letter with the offer. If an offer comes in without any type of mortgage approval this is an incomplete offer. Below we are going to discuss the key differences in the approvals and why they should be included in an offer.
Offer Accepted!
Preapproval or proof of funds is paramount to a successful transaction. When we have your home listed and an offer comes in it needs to include a loan approval so that we know the buyer is serious about purchasing the home.
If the buyer is using owner finance, my suggestion will be that the buyer has their finances reviewed by a RMLO (Registered Mortgage Loan Originator). You the seller will be making the final decision however the second opinion will increase the quality of the note.
If the buyer is purchasing the home using cash we will need a proof of funds letter. The proof of funds letter will need to be verified.
Now if the buyer is going to use traditional financing from a bank you need to know that not all pre-approvals are the same. The reason is that there are 2 types of financing approvals. The first is a pre-qualification and the other is a pre-approval.
Disassembling the approval further, In the case of a pre-qualification, the Loan Originator has agreed to loan the funds based on what the buyer states about their finances. They have agreed to this after a surface review of the borrower’s (buyer) stated finances and credit situation. Surface review is the key term here because this stated information will need to be verified. At this point, the buyer is pre-qualified for the loan.
I want to digress for a moment to explain a bit more about a pre-qualification. Whenever anyone at the Kodiak Bear Group works with a buyer we make sure they obtain a pre-approval. We have seen many future buyers interested in purchasing a home but not take the steps to get pre-approved. There is nothing wrong with being interested in buying and not ready to get pre-approved.
Purchasing a home is a serious commitment that we want our buyers to be comfortable making. Having said that whenever a buyer obtains a pre-approval this lets us know they are serious and ready to submit complete offers.
The next level of approval is Pre-Approval. What makes the Pre-Approval stronger is that the Loan Originator is now going to pull full credit reports in order to find additional information about the buyer. They are going to want to get a copy of the buyer’s bank statements and paystubs. They are going to want to see tax returns this means providing W-2s or 1099s. We like for items that will disqualify a borrower to be discovered here but this doesn’t always happen.
Underwriting
Once we have your property under contract the buyer’s file will then go into underwriting. The underwriter is a separate individual that will dig very deep into the buyer’s background using their finances and credit. The underwriter’s goal is to make sure that this is a good loan for the bank and that the borrower can hold up their end of the agreement. They will re-review all of the information that was provided in the pre-approval.
Occasionally we have seen underwriters catch items that others have missed, remember this is their job to do. This means liens, tax payments, child support, and various items come out causing the underwriter not to sign off on the loan. Depending on the severity of what comes up different solutions will be presented however it is case by case.
Finally, now you know that the difference between pre-qualification and pre-approval is how deep the loan originator went in reviewing the buyer’s finances.
When you are ready to sell your home contact the Kodiak Bear Group by using this link. Contact Us
We appreciate you reading and look forward to working with you on the sale of your property.
Sincerely, the Kodiak Bear Group
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