This is a guest post by Matt Baker. Matt Baker is one of the partners of the Bookspan Baker Team at Cobalt Mortgage. He has over 15 years of experience helping homeowners through the mortgage process. Matt also has a beautiful wife and daughter with one on the way, and lives in Scottsdale. He loves being able to provide home loan services to Arizona families.
Here in the state of Arizona, prospective home buyers are encouraged by the Arizona Residential Resale Real Estate Purchase Contract to submit a Pre-Qualification Form (PQF) with any offer they make, if they are planning on financing their purchase with a mortgage. In fact, some sellers and REALTORS® take the form so seriously, I’ve heard of legitimate offers being rejected because the buyers didn’t submit a Pre-Qualification Form with their offer.
The problem with the term pre-qualification, however, is that it insinuates that all a home buyer needs to do is get pre-qualified – not pre-approved. And while you may only need to get pre-qualified in order to obtain a Pre-Qualification Form, I’d like to discuss:
- Why you need a full pre-approval
- The process of getting a full pre-approval
- How your pre-approval status can be indicated on the Pre-Qualification Form
- The timelines to expect while you are getting pre-approved
- Why you should work with a local expert to help you through all of this
Pre-Qualification vs. Pre-Approval
In order to fully understand what getting pre-approved means, I first need to address the differences between a pre-qualification and a pre-approval. A pre-qualification simply requires a home loan application and a credit report. On the application, you’ll state how much money you make (monthly or annually) and how much money you have in the bank, and then with your permission, we’ll pull your credit report. There is no additional documentation needed.
Can you see why this can be problematic, given today’s very strict lending guidelines?
A pre-approval, on the other hand, requires all of the pre-qualification steps above, as well as a verification of the information used on the mortgage application. Having this information verified before you make an offer on a home should not only give you peace of mind, but also give any seller or REALTOR® peace of mind that you are a motivated and serious home buyer.
The process of getting a full pre-approval.
First, as I already mentioned, you’ll need a credit report. Also, in order to verify your income and assets (which is required on all loans today), we will need copies of your W-2s, pay stubs, and tax returns from the last two years. In addition, we will need copies of your bank account statements, showing where your down payment money came from. So, if the down payment money came or will come to you as a gift, we will need to know who gave it to you and when.
Although getting pre-approved may seem like a lot of work at first, these crucial documents are what separate a typical Pre-Qualification Form from an impressive Pre-Qualification Form.
The last step, which most mortgage lenders don’t do but we at Cobalt Mortgage do, is run a full Desktop Underwriter Automated Approval (DU). A DU approval is required on all loans anyway, so we like to run it early and make sure your loan will meet the automated system’s requirements.
How your pre-approval status can be indicated on the Pre-Qualification Form.
Pre-Qualification Forms must be completed by licensed loan officers. On the PQF, there is a section of check boxes that allows the loan officer to indicate if the documents/information (W-2s, pay stubs, tax returns, bank account statements, etc.) have been verified for a full pre-approval.
**IMPORTANT: I am seeing a growing trend of loan officers checking all of the boxes on PQFs indicating a full pre-approval even though they haven’t actually seen any of the documents they’re saying they did. So, if you haven’t given any supporting documentation to a loan officer, but he/she is still willing to check all of the boxes saying he/she did, run, and run quickly! This, essentially, means they are committing loan fraud.**
Now that you have read this article, I hope you have a better understanding of the differences between being pre-qualified vs. pre-approved. If you want a full pre-approval to make your Pre-Qualification Form look as strong and desirable as it can, please call us at 602-522-9494 or visit us online.
For some additional reading on the mortgage approval process, here’s a great article from Forbes about The Perfect Loan File. The article does a nice job of explaining why mortgage lenders require so much supporting documentation.
Image Credit: Fifth World Art on Flickr. CC Licensed.
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