The first step in the lending origination process is a pre- qualification letter sent to a buyer from a lending organization. The next step is a pre-approval letter. You might be confused. There is an important difference between a pre-qualification letter and a pre-approval letter. A pre- qualification letter is when the lender simply checks the buyer’s credit and asks some basic questions such as:
• “How much do you earn?” • “Where do you work?” • “Have you filed your tax returns?”
Assuming that the buyer answers the questions with satisfactory information, a pre-qualification letter is written. At this stage of the process, there is no verification of the buyer’s information. 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 of shopping for a home, not just a pre-qualification letter.
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