Found your dream home? Make sure you don't lose it!   It is not uncommon for a Seller to have multiple offers on their home. It seems that no matter how long a home is on the market more than one buyer find it at the same time. As a Buyer you need to be prepared to prove to the Seller you are a stronger purchaser than the "other guy" and can qualify for their home and can furnish a mortgage in a reasonable amount of time. This is where an Evaluation or PreApproval for a mortgage becomes important. To ensure you don't accidentally lose your dream home you need to understand the difference between a PreQualification, an Evaluation and a PreApproval. A PQ is equivalent to you looking thru the classifieds to try to figure out the value of a particular home. The data simply isn't there! You have no clue what the homes are actually selling for, the sales terms or how they compare because you only have 10-20 word write ups. But this does allow you to see if you are shopping in the right neighborhood. An Evaluation or a PreApproval is like a full Appraisal. An Appraiser gathers and Evaluates all the accurate sales data and terms to get an exact price based upon precise sales and terms data. He's not limited to a 10-20 word description and therefore can give meaningful information. When it comes to determining your options it is tough to have too much information and easy to have too little. PreQualifying involves taking the first baby steps towards understanding the type and amount of loan that will be best for you. A PreQualification basically only looks at the income to outgo ratios (which is less than half of the qualification process). Sometimes credit reports are pulled, but these are only prelim reports and may not be complete. A PQ is a good first step when you are in the "what if" stage, but you need to upgrade to an Evaluation or PreApproval before you actually start looking seriously. An Evaluation goes a couple of giant steps further than a PQ. Your ratios are worked and a complete credit report is pulled including credit scores. Your financial information is also gathered, researched and verified. An Evaluation tells both you and the Seller that if nothing changes between now and the time you buy you can be approved for a loan IF the property can also be approved (appraised) and a clear title search is done. An Evaluation gives a very definitive answer to the question of how much home you can afford and allows a mortgage company to give you definitive answers as to loan types and interest rates. A PreApproval insures you can secure the loan & terms you want, but it is not a mortgage contract. You cannot actually get the mortgage until the lender can appraise the property and do a title search, but it does give you the information you need to make mortgage decisions. A PreApproval involves making a loan application, an appraisal, final credit reports along with employment, address, and money and verifications that are valid for 60-90 days. Your loan must have been processed quite a way before the mortgage company can truthfully say you are PreApproved. Here are some examples of the information needed for an Evaluation or PreApproval: • 2 years W-2 forms • 2 years income history - possibly 2 years tax returns. • At least a month's worth of pay stubs • Last three months statements of all deposit accounts including savings, checking, IRA, 401(k), and stocks • List of addresses for last 2 years and landlord/mortgage company names and addresses • Additional Mortgage verification & documentation will be needed for a PreApproval   Actually the term PreApproval is a slight misnomer. A mortgage PreApproval is not like a preapproval for a car where you are approved for $X no matter what car you buy. Notice that the paragraph on PreApproval states involves making a loan application, an appraisal, final credit.... A specific property is required for a true mortgage approval. So a PreApproval really only means you have made loan application and your loan has been sufficiently processed that with the addition of the appraisal and the title work of the property you are buying you should be approved when submitted to the Underwriter. But it is light years ahead of a PQ and the Sellers know it. If you seriously want a house it is up to you to prove to the Seller you have the capacity to purchase it. A PQ is basically meaningless at this stage of the game. The Sellers will be making some definite plans based upon your profession of ability to buy their house you can understand their desire for confirmation by an unbiased mortgage professional. They furnish you with an appraisal to prove their house is worth what you are paying, they are simply asking for some assurances in kind from you. An Evaluation is in effect an Appraisal of your abilitites. Unless you are wanting to close very quickly, an Evaluation is probably sufficient to satisfy most Sellers and secure the purchase of your dream home. (unless the OTHER Buyer has already made loan application) An Evaluation says that IF you buy an acceptable property you can be approved. The only sure way is to make loan application prior to finding your dream home. top A note of warning! Many lenders will do a PQ and call it a PreApproval! The big problem with this (other than the fact you may be looking in the wrong price range) is that when that Lender is called upon to furnish proof to the Seller, and can't, it can cost you your dream home. How can you protect yourself? Education! Knowing the difference between a PQ, Evaluation and a PreApproval is the best bet. Reread the section above that compares the 3. An quick, easy way to tell the difference is time. An Evaluation takes quite a bit longer and goes into much more detail than a PQ. A PreApproval requires you to make a written loan application. If the Lender isn't asking a lot of personal details &/or gathering paystubs, etc. they are just skimming the surface and doing a PQ. Which means they may or may not have given you the right figures. A basic rule of thumb says that if there is any information an Underwriter would need later to underwrite or approve your loan then the Lender should be looking at it NOW. For your protection our Lending Partners are not allowed to do PQs. They must always furnish an Evaluation or PreApproval. Unlike other lenders, if they are doing your financing they will also step you thru the balance of the sale and closing process. This means that if you use a lender other than one of our Lending Partners you will be totally on your own. You will not have someone to help you with the contract or coordinate the attorneys, title company, title transfer or the closing process. There is one more thing to consider, many of the FSBO RegistrySellers will pay a portion of your closing costs if (and only if) you use one of the Lending Partners. SO WHY RISK IT?

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David Bennett

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