Every Realtor knows that showing a home to a non-qualified buyer is potentially wasting his or her valuable time and that of the home seller. "Have you been pre-approved?," is a question many Realtors are taught to ask, but what does YES really mean? Pre-approved has different meanings to different people, and certainly the buyer's interpretation can be a long way from reality. My advice is to Realtors is to ask another question or two: 1) What is the name of the mortgage professional you are dealing with? (to see if an actual relationship has been established), and 2) When did they last review any of your documents and credit report? (to see at what stage of assessment prospect is at). Depending on the prospect's answers, you can better prioritize your time and decide on best next steps.
I like to use the terms 1) Pre-assessment, 2) Pre-Approval, and 3) Approval as the stages or steps towards a final mortgage approval and a successful real estate transaction.
- Pre-Assessment is a verbal discussion with the client surrounding income sources, debts, credit profile, and down payment. I explore what documentation a borrower could provide and do some calculations on what size mortgage/purchase is attainable for the client. Key to note is that it is fast and doesn't involve an application, credit report review, or documentation review. Pre-assessments are very effective when performed by an experienced mortgage professional as they too are busy and are trying to prioritize/screen clients lightening fast. If a client wants to see one of your listings but doesn't fill you with confidence as to where they are in the approval process, have them call me as a pre-requisite to the viewing and you will know within the hour whether to proceed or not. 1.888.540.1715 - Call me for any mortgage questions!
- Pre-Approval to me means the prospect is engaged enough to fill out an application, give consent for a credit review, and provide documentation to support their application (job letter, pay stub, tax information, down payment proof, etc.). It takes a lot more time and rigor, and often means making and attending an appointment with their mortgage professional. Going back to the two extra questions above, and you can quickly see the value in asking them. Keep in mind that the mortgage professional, whether broker or bank specialist, is NOT the person to approve the loan, but rather the one that SUBMITS the loan for Risk Underwriting. In the pre-approval stage, the applicant's information seldom makes it to formal risk underwriting, as that is resource intensive and usually reserved for "live" deals only. Further, if a loan is high-ratio (under 20% down), it requires mortgage default loan insurance (CMHC or Genworth). The insurers do NOT provide pre-approvals-period. However, good mortgage professionals can give a strong opinion as to likelihood of an approval. Unlike a bank, a mortgage broker will have multiple lending sources they can go to, which often means greater success probability for clients and - of course - their Realtors.
- Approval requires a property, while pre-approval and pre-assessment do not. For an approval, a property must meet the lender's property policy hence a huge risk if a buyer's offer does not include a financing condition. So Approval is the final stage where the mortgage application, credit report, and property all come together and are submitted to a lender for underwriting. If the loan application and property meet the lender's internal underwriting policy, they then submit the deal to CMHC/GE for underwriting. Upon CMHC/GE approval, lender then provides a conditional approval for the buyer. To make a conditional approval a final approval, the mortgage professional forwards the offer to purchase, MLS listing, proof of income, proof of down payment, proof of closing costs, etc. to the lender for review and sign off. If a physical appraisal is required/conditioned, it gets queued up here.
