June 30th, 2007 by George

Selling Agent: So you have spoken to the lender?

Buying Customer: Oh yes, I received the approval the other day. Everything is in order Ms. Agent.

Selling Agent: Great! Well let’s close this out and put you in your new home.

A few days later…

Selling Agent: Ummm, Mr. Customer, I thought you said you were approved? You were merely pre-approved and now it looks like you are not going to actually be approved.

Buying Customer: Ummm, aren’t they the same thing. Approved is approved.

Selling Agent: Approved is approved, Mr. Customer. But, pre-approved is not approved!
It has happened many times before. A customer has their pre-approval letter in hand, only to learn the bitter taste of rejection down the road.

So what is the difference between an pre-approval and an approval?

Pre-approval

• shows seller that the buyer has had their credit evaluated by a professional. The information is entered into the underwriting system and an automated result is produced… Yay or Nay. There is no documentation provided to the lender at this time, therefore, the buyer typically provides the information verbally, over the phone, online, or in-person.

Approval (finito, the end goal, you are here!)

• Everything is verified. Pay stubs,W-2’s, stock holdings, collateral, everything that is put together for the lender. Here an underwriter will sign their name to the loan after everthing is reviewed and the result is the green light.

So, if you have only talked with someone over the phone, and they said you are qualified for $135,000 and they provide you with a letter, this is a pre-approval letter. Believe me, you will understand that an approval is not nearly as easy and painless. Be prepared to find documentation. No time like the present to start keeping a folder filled with those old paystubs.

Time to buy a shredder!

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