Do Pre-Approval Letters Really Mean Anything?

Minneapolis, MN: When buying a home, everyone will tell you that you need a Pre-Approval Letter, and pretty much no sellers will look at your offer without a Pre-Approval Letter being attached to your offer. But do Pre-Approval letters really mean anything?

The correct answer is yes, no and maybe.

The intent of a pre-approval letter is incredibly valid in the home buying process. It is designed to inform a potential home buyer that their odd’s of final loan approval is strong. For sellers and Real Estate Agents, it tells them the buyer has met with a Loan Officer, who has reviewed their application and documentation, and everything looks good for final approval once they select an actual home.

Pre-Approval is very different from basic Pre-Qualification

Pre-Qualification is always the initial step in the home loan process. The client provides and application, and the lender generally pulls a credit report for review. The client provides an overview of they situation, including jobs, income, assets, and debt. Usually just verbally.

Other than maybe a credit report, little, if any actual supporting documentation is obtained. It is more of a sounds like you should be fine type conversation on certain assumptions.

This is generally adequate for early kicking around the idea of buying a home, and can be done rather quickly on the phone.

Standard Loan Pre-Approval

The more typical standard mortgage loan Pre-Approval starts with the steps of Pre-Qualification, but the Loan Officer also collects and actually reviews your standard supporting documents, like pay stubs, W2’s, bank statements, and tax returns. The Loan Officer will also usually submit the application information through an automated underwriting computer system (AUS) to get a computerized initial loan approval.

This is a huge step above a Pre-Qualification, but is almost always limited to just the Loan Officer’s review. In-experienced Loan Officers, and not reviewing all documents may result in being told your are Pre-Approved, but the application may actually be denied.  It is extremely important to have an experienced Loan Officer who has seen just about everything on your side to eliminate future issues.

This is the most common form of Pre-Approval, and fits well for the vast majority of clients. It can generally be done in a day or two with most lenders.

Full Underwriter Pre-Approval

Full Underwriter mortgage Pre-Approval is when your application and all supporting documentation are reviewed and approved by an Underwriter.  This includes reviewing all your documents, and completing all the job verification, tax return verification, and fraud check that lenders do as part of the approval process that are not done with a standard Pre-Approval.

This is also sometimes known as a full credit approval. It is still not a guarantee of closing, as the lender will need to get an appraisal and review a title company commitment of clean title once you have a successful offer on a home before, but all credit related issues have been cleared.

As this is a full credit approval, this generally can take two weeks or more to complete.

Underwriter Pre-Approval Carries More Weight

Cambria Mortgage offers both your standard Pre-Approval, and a Full Underwriter Pre-Approval, depending on the clients needs. We call it our process of Underwriter approval a Certified Pre-Approval.

Underwriter Pre-Approval holds more weight, and is more attractive to sellers, especially when looking at multiple offers. Home sellers like it better knowing that more pieces of the approval puzzle have already been reviewed and signed off on by an actual underwriter. It puts your offer on top of any standard Pre-Approval, and especially any basic Pre-Qualification.

This is why we at The Joe Metzler Team at Cambria Mortgage offer both options. The speed of a basic Pre-Approval Letter, and the Confidence of an Underwriter reviewed Certified  Pre-Approval Letter.

We lend in MN, WI, IA, SD, and ND. To apply directly with me, and find out what type of Pre-Approval is right for you, just go to iMortgageJoe.com, my personal web site, or call me at (651) 552-3681.