Pre-Qualifiction vs. Pre-approval

11 Replies

So, I've reached out (given my 810 credit score and shared my income, low debt, etc.) to various lending companies and brokers and learned that nobody "pre-qualifies." They all suggest going straight for "pre-approval." It's my understanding that if you apply for pre-approval with several lenders, it's best to have them all perform a hard credit pull within a 2-week span, to avoid it affecting your credit. Any thoughts?

Also, if I do decide to apply for pre-approval with several lenders to compare rates and plans, how long before the pre-approvals expire? And if they do expire, what would I need to do to get an extension?

I'm determined to buy a property in the next few months, but I will need enough time to analyze them with the BP calculators to ensure I get the right deal. I thought getting pre-qualified was the first step? All thoughts and ideas toward the next step are welcome! Thank you. - Philip

Yes, a prequalification really means nothing.  Preapprovals don’t really expire as they are not an actual commitment, but sellers probably don’t want to see one more than 60-90 days old.  A legit one will include you Actually submitting tax returns, W-2’s, bank statements, etc. in addition to a credit report.

Oh, and get one for the max you are approved for, regardless of how much you plan on borrowing, it shows you are a stronger candidate to buy.

Sellers usually want a "recent" pre-approval letter to make sure you are financially able to  perform on the contract. If you have one that is dated no more than 60 days they should accept it. You are correct, if all the hard pulls are done within a short period of time it won't hurt your credit. I wouldn't worry too much about the pre-approval letter. If you have one, the assumption is you can get approved again even if it expires. Rather focus on the deal. If you have a good deal you can always find the money. Good luck!

@Nuhan Demirkan

I'm reaching out to realtors to look at deals. Many won't show me a property until I get a pre approval first and from their referrals (don't know why). Any way around this? I was looking to BRRR with starting with either 203k loan or hard money if needs be. I don't want to get multiple pulls on my credit. I need time to analyze the deals and see other properties. When I finally choose one it may not be for 2-3 months later since I need to find one where the numbers work.

@Uneeq Khan couple things here. I'm an agent and lender so I see it from multiple sides. Maybe your market is hot and they don't want to waste time with a buyer that may or may not qualify. They have no idea what you can or can't afford and until you get pre-approved you probably don't either. It also shows that you are serious...someone who doesn't want to go through the process to get approved doesn't seem as serious about it as someone who does. Another wrinkle to your plan is you are also wanting to BRRRR, which is fine but you are asking to see properties that need renovation work and wanting to use 203k or Hard Money loans. The agents don't know if you are capable of handling this and you don't have a pre-approval letter for either of those options as well it sounds like. I would highly suggest you get approved, either from a traditional lender or a hard money lender. I wouldn't worry so much about them pulling your credit multiple times as lenders see this and know what it was for. That's what your credit is for in the first allow you access to buy things. Stop worrying so much about a couple point hit when it allows you to accomplish your goals. Good luck.

@Bob Woelfel

Last time I purchased a property (for personal) the loan officer ran my credit 3 times, each time it dropped my score. Not sure why she ran it three time within a 2 month time frame.

Also, she rushed me into locking in with her and said rate she gave expires in 24 hours. And when I signed with her I couldn't shop around to other loan officers. Is this true or did she play me?

@Uneeq Khan I'm sorry that happened.  I am not a "traditional" lender so take this for what it's worth, but I have done a lot of loans for both personal and investment properties.  I have no idea why it was pulled by the same lender multiple times.  Once it's pulled it should be good for at least a couple months and maybe longer.  Most lenders will allow you to do a "rate lock" with them for a period of time, but that also should not prohibit you from talking to other lenders.  Again, I don't work in that space every day but it sounds like she used some tactics to get you to stay with her that weren't necessarily true.  

I will say that once you find a lender and terms you are happy with I always encourage people to move on as you have a number of other things to worry about with these types of transactions that will need your attention.  Good luck.

@Bob Woelfel

Thanks for the tip. She was terrible to work with. Always blamed her mistakes and issues on either the realtor, lawyers or insurance company. Our names were constantly wrong on all her documents. I couldn't tell if I had a good rate cause I could only compare it with what was on since she said I couldn't go with other lenders.

As for this new BRRRR deal I'm working on, I'm going in with a partner. When the preapproval is done does it need both of us or just one? My partner is putting up all the money, I'm just doing the legwork. Eventually we will move the property to an LLC. So would it matter whose name the mortgage is under in the beginning? Looking to BRRRR.

@Philip C. - Just FYI, the lender we refer clients to does a "Desktop Pre-Approval"  which simply means they pre approve you once all your documents and necessary paperwork has been submitted to them.  Its a fairly quick process and you have a pre-approval letter usually the same day.  

As far as the letter expiring, they take it on a case by case basis.  If you got pre-approved in January and were ready to go in August, I believe you would have to get pre-approved again.

It is always a good idea (and necessary if you ask me) to get pre-approved before you start to look for a property.  You may either be looking at higher priced homes, or even too low priced homes.  The idea is to get a clear picture what you are approved for, protect your stamina, and focus on the right fit.