Tuesday, March 11, 2008


Verification and Documentation explain the difference. Pre-Qualification is based on information provided by the buyer whereas Pre-Approval is given after receipt of copies of bank account statements, income proof (pay stubs) and income tax returns; other information may be requested as well. Neither are considered a mortgage commitment, but the more detailed Pre-Approval is preferred by sellers. Pre-Qualification requires the borrowers name, address, phone number, date of birth and social security number with permission to do a credit check. Questions may be asked about annual income and what down payment the borrower can make. A letter is issued with an estimate of the amount of a mortgage for which the borrower can be approved, based on documentation verification, which may be described in the letter. The letter will also include a disclaimer, e.g., “subject to verification of employment (2 years of work history) / assets / credit review / charge card statements / mortgage underwriting guidelines” and the prevailing interest rate, which can be “locked in.” This serves temporarily as confirmation to a seller that a buyer appears to be able to afford to purchase their property. Underwriting criteria may include credit scores, work history, verification of income, qualifying income ratios, verification of where down payment will come from (e.g., brokerage or bank account or gift), cash reserves after closing. There may be information that has a negative impact on mortgage approval, including a borrowed down payment, inconsistent work history, unreported “cash” income, not enough assets for closing costs, and other issues.

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