The buyer can say they make millions of dollars per year and, assuming they have good credit, be “pre-qualified” for a multi- million dollar house. With the drafting of a pre-approval letter, the lender actually goes through and verifies the prospective buyer’s income, down payment, down payment source, and ensures tax returns have been filed if the prospective buyer is a self-employed borrower. With a pre-approval letter, the lender is asserting that it has verified more information besides just the buyer’s credit. They verify the buyer has a good income, a solid job, or, if self- employed, has been self-employed for a long enough period to qualify for some of the lending programs that are on the market. That’s why, as the real estate agent, you want your client to have a pre-approval declaration or letter before really beginning the loan process with a lender, not just a pre-qualification letter. As far as I’m concerned, a pre-qualification letter for your buyer is simply the first step in the loan process and not enough to start building a loan package. Some lenders will prey on the fact that you (and borrowers!) don’t know the difference between these two types of letters. A professional lender will not assume that a pre-qualification letter is good enough to begin the loan process. I work with my customers to achieve pre-approval status before discussing anything further. As you might know, after the housing crash we had some years ago starting around 2008, banks are now more stringent about loans. As such, a pre-qualification letter is simply not good enough to get a mortgage from a professional organization in today’s marketplace. Any lender who tells you otherwise is not a lender you want to work with.
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