When 60 Second Pre-Whatevers Go Wrong
Picture this. You’re cruising through your sixties. Retirement is treating you well. You’ve got the freedom to do what you want, when you want, how you want. Yet, when you return home daily you realize that home is a little bit emptier than it used to be.
Your kids have long since left the nest. The five bedroom house you’ve called home for the last fifteen years is now a little bit big. So you decide to sell.
You start by calling your realtor. She’s the best, and she leaves nothing to chance. First step, call your bank, get pre-approved for a mortgage. You go online to get the phone number for the bank and you notice an ad that says “60 Second Pre-Qualification.” You click the link and fill out your information. The faceless online calculator spits out a number. Your maximum purchase price.
The bank knows that the pre-qualification isn’t worth shit. It is nothing more than a means to get your contact information so a salesperson can follow up. Within minutes you are on the phone with a mortgage specialist who takes a full application. But even that application isn’t enough to rely on before you sell your house.
Unfortunately the mortgage specialist – the expert – leads you to believe it is. You list your house for sale. You clean it top to bottom, you stage it with beautiful new furniture. Your home has never looked better, and a slew of buyers agree. Your house sells within days, and you don’t even realize your pre-approval is a ticking time bomb.
With your beloved home sold it is time for you to find your retirement home. You find a beautiful place. It is the right size, in the right neighborhood, at an amazing price. You contact your mortgage specialist to get the ball rolling on the new mortgage.
Your specialists asks for some documents to prove income. Nothing crazy, just some bank statements and paystubs from your pension. It isn’t an issue because the information you provided on the application is accurate. But it is an issue.
The 60 second online pre-qualification wasn’t accurate. Neither was the pre-approval the mortgage specialist provided.
Now you’ve sold your home and your trusted bank is telling you that you can’t buy a new one. You are officially homeless and committed to renting for the rest of your life. Why? Because yout mortgage specialist stopped short of underwriting your mortgage up front.
True story.
That’s right. What you have just read is a true story. A real client who was pre-qualified, then pre-approved, and then declined. Their house sold out from underneath of them because of a banks desire to make mortgages fast. The problem with fast is that when it is put before accurate it causes big problems.
So lets clear something up real fast. A pre-approval and a pre-qualification are the same damn thing. The terms are interchangeable because they are used differently by different institutions. “Oh, you only got pre-approved, you need to be pre-qualified,” one bank will tell you. Another will say their pre-approval is better than the other banks pre-qualification.
Those two terms mean the same thing and they mean nothing. What matters is that your documents are reviewed and your file is underwritten up front. What does underwritten upfront mean? It means that your broker or specialist reviews your file as if you have already bought a place. They look at every angle, make sure your documents match your income, and that your credit is good.
They review everything as if the mortgage is live. That is what matters. Pre-approval, pre-qualification, who cares. “Did you underwrite my file upfront?” That is the question you should be asking.
A pre-whatever is only reliable if it is underwritten upfront. And up front underwriting can’t be done in 60 seconds.
60 second pre-whatevers are like unicorns, you can believe in them but don’t count on them.
