{"id":3115,"date":"2016-02-18T15:58:41","date_gmt":"2016-02-18T15:58:41","guid":{"rendered":"http:\/\/teammovemortgage.com\/?p=3115"},"modified":"2020-07-13T22:33:29","modified_gmt":"2020-07-13T22:33:29","slug":"understanding-the-levels-of-prequalification-letters-for-buyers","status":"publish","type":"post","link":"https:\/\/teammovemortgage.com\/blog\/understanding-the-levels-of-prequalification-letters-for-buyers\/","title":{"rendered":"Prequalification Letters: Understanding the Levels of each for Buyers"},"content":{"rendered":"

Mortgage prequalification letters \"Movingcan\u00a0be\u00a0worthless words on a paper or it could\u00a0close\u00a0the deal!<\/strong><\/h1>\n

Nowadays just about every real estate agent requires that a buyer be prequalified prior to spending valuable time and money showing houses to a buyer.\u00a0 Some buyers\u00a0still ask “Why is this needed?” and there are a lot more reasons than you may think.\u00a0 If you haven’t read our recent article “Prequalification letter, why are buyers agents requiring it before showing houses?”, check it out here<\/a><\/strong><\/span>.<\/p>\n

One thing to know as a buyer, seller, and Realtor is that not all prequalification letters and lenders\u00a0are created equal.\u00a0 There are 3 main categories of prequal letters offered by lenders which we explain today so that you have the knowledge to make your best decisions during the purchase process.<\/p>\n

Why Prequalification Letter instead of Pre-Approval Letter?<\/h2>\n

Pre-Approval, technically because it contains the\u00a0term “approval” is\u00a0equal to issuing a ‘commitment’ which come with legal liability to a lender.\u00a0 For instance, if a lender provides a “pre-approval” that means that they should have a situation which requires a Loan Estimate and then requires the lender to meet certain tolerances which can cost a lot of money if not accurate up-front.\u00a0 It is very difficult to disclose accurately up-front when the costs and terms of the contract are not known.\u00a0\u00a0Therefore a majority of lenders would and should use a prequalification letters rather than a pre-approval letter.\u00a0 Some think that a prequalification letter is not a good thing, but as you will see below it depends on which type is provided and we firmly believe in the 3rd and best one.<\/p>\n

Main Types \/ Levels of Mortgage Prequalification Letters<\/strong><\/h2>\n
    \n
  1. Basic verbal\u00a0buyer information and no credit report pulled<\/strong> – Why would someone accept this?<\/li>\n
  2. Verbal buyer information and a tri-merge credit report<\/strong> – Better but still based on buyer verbal information & not\u00a0verified information<\/li>\n
  3. Verbal buyer information, actual income asset and credit documentation, and a tri-merge credit report<\/strong> – Best and what sellers and agents would want you to have in most circumstances<\/li>\n<\/ol>\n

    Below we fully explain the differences and which ones are best, but I bet you know which is best already.<\/p>\n

    Prequalification Letter with basic information and no credit report pulled\"Worst<\/h2>\n

    This prequel letter is worth as much as the paper it is written on\u00a0because all it has is some basic verbally provided information and not even a credit report to review.\u00a0\u00a0There are so many buyers which thought they qualified for a mortgage and then once credit was pulled or tax returns were provided, it was denied.\u00a0 So why would you ever agree as a seller to accept this type of prequalification letter that could be full of bogus or erroneous\u00a0information?\u00a0 Just say no!<\/p>\n

    Prequalification Letter with buyer supplied verbal information and a tri-merge credit report<\/h2>\n

    This is better than the first option because we have a credit report now.\u00a0 A credit report along with the verbal income, assets, etc supplied by the buyer gives a lender a good idea of the chances of qualifying.\u00a0 But, there are so many things that are still based on verbal information or a even a guess at this point.\u00a0 \"PREQUALIFICATIONWhat if the buyer is self-employed?\u00a0 Self-employed buyers usually don’t know their bottom line profit of their business and items to add back for qualifying income.\u00a0 What if the buyer receives commissions, bonuses, or overtime?\u00a0 Most do not know the average of these over a 1 – 2 year period.\u00a0 Amounts in bank accounts and retirement accounts are usually a guess and can be off by a lot.\u00a0 But often the buyer and\/or the Realtor are in a rushed situation needing a prequalification letter immediately to make an offer on\u00a0a popular listing.\u00a0 As long as all parties understand that no documentation has been provided, they can make a decision to accept such or not.\u00a0 This is usually the most popular type of prequalification letter, but not the best for a buyer, Realtor, or seller.<\/p>\n

    Prequalification Letter with actual income, assets, and credit documentation<\/strong><\/h2>\n

    Obviously a seller wants this one and really a buyer should want this one as well.\u00a0\u00a0We know that a buyer often applies for a mortgage\u00a0right when they have just found the perfect property and wants to submit an offer right away.\u00a0 But providing the information up-front for mortgage processing provides so many advantages for the buyer!<\/p>\n

    Benefits to the buyer for waiting for the full prequalification letter<\/h3>\n