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PreQualification Vs PreApproval Vs Conditional Loan Approval - YouTube
Channel: Michael Hausam
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Well hi there, I'm Michael Hausam of The
Hausam Group at Vista Pacific Realty; so I
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had a couple of buyer consults last week
where the issue of pre-qualification
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came up... or pre-approval or conditional
loan approval; there's a bunch of
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different words for that; oftentimes
they're used interchangeably, but this is
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arguably as an upfront effort one of the
most important things that a homebuyer
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can do and the confusion about these
terms and what they mean is pretty
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significant; also there's quite a
tremendous strategy involved if you
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complete this process correctly; so I
want to define a few terms and correct a
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few errors along the way; all right, so
first of all the pre-approval or
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pre-qualification, conditional loan
approval, whatever you call it, is
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basically all the work that's done by a
buyer up-front, before they ever go out
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and buy a house; okay it really makes
sense to do that no matter what because
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you want to be making sure that you're
looking for homes in the price range
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that you can qualify for and also it
makes a heck of a lot of sense to make
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sure that the home that you'd like is
something that you can actually spend
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the money on to buy, both on the cash
down as well as a monthly basis; but
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let's look into the details;
there are basically three levels of work
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that can be done upfront; number one is
called pre-qualification;
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pre-qualification is a verbal
conversation with a lender; sometimes it
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might include a credit report sometimes
not,
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it never includes providing income
documentation; basically a
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pre-qualification is a paper-napkin
discussion with the lender that
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says, "yeah this is about what
it's gonna cost and if everything you
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told me is correct, you might be able to
get a loan." It basically is the simplest,
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least intrusive way to have a
conversation with a lender to kind of
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figure out, "yeah I think you could
probably qualify for a loan." But let me
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assure you this, precisely zero
listening agents and home sellers are
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impressed with the pre-qualification; the
second level of advanced work is known
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as a pre-approval; now way back in the
day, in the 1990s when I first got into
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the mortgage business, a pre-approval
meant that you took an entire loan file
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and took it to an actual human
underwriter who went through everything
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and signed off on the loan; that was
literally pre-approved before finding a
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home; well nowadays it's a little fuzzier
than that; a pre-approval typically will
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include providing income documentation
to the lender, pulling a credit report,
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and then submitting to an electronic
underwriting process, but no formal loan
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underwriting approval is given; based
upon my experience roughly 99.9 percent
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of all transactions go together with a
pre-approval. But notice the key point on
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that: no underwriting approval from an
actual human underwriter; what they do is
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this is they take all the income
documentation and then they type it in
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the computer - pay stubs show this - income
shows that - credit report shows this - they
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put that all into a computer press ENTER
and Fannie Mae's version of this is
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called the desktop underwriter and it
spits out what they call a "finding" and
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the finding is they are going to get
approved; or you're likely going to be
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approved; what it isn't is an actual
approval; the key test would be this: if
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you've got what you think is a fully
underwritten loan approval from a lender,
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you can ask them what are the conditions
of the loan approval and you'll hear
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something like, "well, we don't have actual
loan conditions yet because you need to
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find a house and submit the loan with
the contract and appraisal and all that
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to get your loan conditions." Well that's
the key: you don't have an approval you
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have an electronic pre-approval, which is
not quite as strong
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and that brings me to number three: a
conditional loan approval or sometimes
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it's called
a TBD approval; TBD meaning the property
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is to be determined; the conditional loan
approval is like the pre-approval of old
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and that is you take the entire file, the
pay stubs, the bank statements, the tax
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returns - everything - the credit report, you
submit that to an underwriter, who goes
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through and signs off on it, will provide
of list conditions from the lender in
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order to close the loan; it literally is
a loan commitment; and this is the
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important part:
the typical lender and I would say in my
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experience probably 2/3 of them do not
like to do conditional loan approvals,
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because that underwriter is a two
hundred or two hundred and fifty thousand
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dollar a year person and their autograph,
literally their signature, is sufficient
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to release those funds and the lender's
gonna want that underwriter not working
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on deals that haven't yet happened, but on
those that are already in escrow; but the
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key thing is if you find a lender who
will get you a conditional loan approval,
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you can literally go out into the
marketplace with an approval in hand,
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effectively negotiating as cash; let me
show you an example: this right here, this
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is a conditional loan approval on a
transaction that I did recently, from a
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lender that I work with called Parkside
lending and if you look at this two page,
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three, four-page document, it's got the
underwriters name right here: Sean Mackie;
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it has a full on commitment from this
lender with a list of prior-to-doc
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conditions, going onto two pages and then
a list of prior to close conditions; so
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this is literally the commitment from
the lender to make the loan; so the
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borrower's and I (my clients), we went
through and looked at all of these
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conditions to make sure that there were
no conditions on here that we couldn't
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meet; once we figured that out and we
were satisfied, we were able to write an
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exceptional offer ;the offer that we
wrote didn't have a loan contingency at
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all; it was very important that my
clients' problem, which was they needed a
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loan, and literally that is a problem: if
you don't have enough cash to buy a
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house and you need a loan, that's your
issue, that's not the sellers issue; so we
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wrote the offer without a loan
contingency because we already had the
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loan and we didn't need the time to go
out and find one; and that effectively
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made my clients just as good as all-cash
buyers;
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well, as you could imagine, the listing
agent and the seller loved that and we
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got the transaction accepted;
surprisingly, we found out later they
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were competing against a 50% down
offer; so think about this:
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my clients were writing a 20% down offer,
the competition was writing a 50% down
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offer; now typically you would think that
a 50% down offer would be a better offer
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than the 20% down, right? Well not in this
case; the 50% down offer, they asked for a
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two-week loan contingency, my clients
they asked for none; if you'd like to
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discuss this further, I'd be happy to
help you ;you can call me 949
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413-2371, you
can also email me Michael @ HausamGroup.com
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Thank you very much and have a
great day!
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