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I was under the impression that pre-qualification was a very informal procedure that could be done over the web or even the phone without any applications, SSNs, credit pulls, etc. The guy I've been talking to at Wells Fargo (local mortgage branch) says that we need to fill out a mortgage application just for pre-qual or he can't give us "accurate information". It caught me a little by surprise since I was expecting to just tell him everything first-hand, but maybe filling out apps is the norm.
WF is the first place we've contacted to start mortgage shopping and I was wondering if we'll be in for filling out applications for pre-qualification at every other lender we want to shop too?
BTW, everything on the online app he wants us to submit says "application for mortgage or mortgage pre-approval", nothing about just for pre-qualification. Has anyone ever has a pre-qualification app "accidentally" submitted for pre-approval instead??
I would stay away from WF at this time. ALOT of horror stories. A pre-qual just requires basic info and no pull and gives you a yes or no answer for qualification and sometimes the amount. A pre approval is more accurate and gives you amount the bank truly would be willing to lend you after credit and debt analysis.
Our mortgage world has changed greatly in the past few years, and drastically changed in the past 12 months. It use to be, "what's your income, how much are your monthly debts?" and we could run the numbers and give you an idea what you qualified for.......no more.
All loan programs are credit score driven. Well, let me re-phrase that. All investors price by credit score. Then, add to the fact, certain credit scores are limited to certain debt ratios. The credit score, debt ratio, down payment, property type, location of property, occupancy type (and the list does go on) all go into determining the interest rate. We need an interest rate to calculate the mortgage payment to see if you qualify. That's the first part of the equation. (Make sense?)
The other factor in a pre-qualification is our heavy reliance on automated underwriting systems (AUS), or more commonly referred to as DU (for Fannie Mae's Desktop Underwriting). The AUS is the mortgage industry's artificial intelligence model that renders credit decisions. For example, if you have someone that makes $30,000 per year, they would never traditionally qualify for a mortgage of $300.000 using manual underwriting (humans and a calculator). But the computer will read that the borrower has a 800 credit score, has owned numerous homes and has significant assets in the bank and owns a property free and clear that is on the market for sale. (Over simplified, but it gives you the idea). AUS gives us the ability to approve loans that never would have been approved before. Before AUS, we could have a borrower w/ 3x the home's value in the bank and not have the ability to approve the loan. I seriously cannot tell you the last time I had a borrower that actually fit guideline ratios.....it's rare.
While mortgage shopping, your score should not be hit if the inquiries (credit pulls) are all within a period of time. Many say 30 days, I advise 2 weeks. Ask the loan officer for a copy (they may or may not provide, most will not, as it's against company policy) in pdf format and you can use that while talking to other lenders.
But to answer your question....a prequalification is no longer the simple telephone call it use to be. There are so many changes and quirks, if someone does not get detailed and complete information, they are short-changing you. I ask prequal customers to complete a short app so I can evaluate their qualifications properly (that's later used to generate the mountain of disclosures)
my LO also pulled the credit to determine what we should do if anything needed because we already knew that our credit wasn`t the best...i also immed faxed over w-2`s and paystubs so that she has it handy when the lender asks for it...but even for her to just give me an idea of what we`ll be lookin at as far as interest rate and payment she had to know what credit score we have and what income...so i dont think any good LO can give you an idea without knowing your situation ...hope it helps but i would also stay away from WF as i also heard horror stories about them ...
Traditionally, a pre qualification is a relatively short prescreening process to determine what loan amount you qualify for based upon income, assets, down payment, and expenses and a verbal indication of credit. Any competent LO should be able to do this in about 10-15 min. If there are credit issues, or if the client is unsure of credit, then it may be wise to pull the report to get a better picture of the client's standing.
If the client knows that they have perfect credit, though, it's usually not required.
It would all be subject to verification of course, which would be the pre-approval.
The pre-approval is a full underwrite with everything except property information.
Once the property is determined, then you submit the prelim, contract, and appraisal and you have a full approval.
Thanks for the info everyone. Yeah, I have heard there were some horror stories with WF, we just needed a place to start and they did have a local mortgage branch.
We have no credit problems (both of us are 750+ FICO) which is why I thought pre-qualification would be a simple matter of telling them that and our income/debt and letting them run the numbers.
I have no problem giving them the info, but with the app and all the info he wants, I am concerned he wants to get us pre-approved rather than just a pre-qualification. He said flat out that "I would have to see your 2008 taxes and two months worth of paystubs to get you qualified..."
Doesn't that seem more like pre-approval rather than pre-qualification though, especially since the app he wants us to fill out says "Application for Mortgage or Pre-Approval"?
can it be that once people are "pre approved" by a bank, they are less likely to shop the loan as much, since they've already gone so far down the road? Moving a "pre-qual" to a "Pre-Approved" is a good way for them to close a loan.
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Originally Posted by superfly10
can it be that once people are "pre approved" by a bank, they are less likely to shop the loan as much, since they've already gone so far down the road? Moving a "pre-qual" to a "Pre-Approved" is a good way for them to close a loan.
Not necessarily. I, for one, do not prequalify my prospects, I only preapprove them. My real estate agent partners and my prospects actually appreciate this because with a preapproval everyone can be more confident in the home shopping process. Nothing is binding in the mortgage process until you sign the closing package, and in the case of refinances it's not final until the 3 day right of rescission is up.
Let's say hypothetically I had a prospect call me and give me their information and I issue a prequal, obviously not verifying any of it. The prospect and the real estate agent go out shopping for homes based on this prequal, and find one that the prospect falls in love with. They put in an offer, I receive a fully executed purchase agreement and hand the file off to my processor. I contact the prospect and ask for the documentation to verify the information I was previously given. I find that either a) the prospect was rounding up their total gross monthly income b) the prospect's credit score was pulled off of some internet site and is not indicative of what the prospect's credit score truly is c) the prospect, although having said amount of assets, made a large cash deposit recently that cannot be sourced or seasoned. Any one of these things, as well as others, can be a deal killer.
By doing preapprovals, verifying everything upfront, being proactive in looking for red flags, and running the scenario through the automated underwriting system, you take a lot of the "what if" out of the equation.
All a prequalification serves is to inform the buyer how much they can afford. You can do this yourself with calculators on the internet. In fact you should figure out how much you can afford and how much you want to spend before you go look at any properties. You can go shopping for rates by comparing the various lendor's websites and talking to their mortgage people by asking questions about their programs.
Then you should get a pre-approval at a bank that you may get a mortgage from so that you can use it if you want to put in an offer. A full mortgage application is probably not done until after you have a contract on a property and it has been thru attorney review.
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