The Difference Between a Pre-Qual and a Pre-Approval

Prior to getting into maximizing the marketing power of a Pre-Qualification, I would briefly like to go over the difference between a Pre-Qualification, and Pre-Approval. Many people (not just clients) use the two terms synonymously when they should not be.

The Pre-Qualification process can be considered a mini-loan process. The loan officer speaks with the client, typically no documents are collected at this time, and credit is run. After the credit check, the loan officer gives a rough estimate as to what can be done with regard to financing percentage, rate, and programs. The file is not run through an underwriting process, but it does meet very general loan criteria such as debt to income ratios for a purchase, etc.

Essentially, the pre-qualification letter is one of the initial pieces of marketing material that you provide to your clients. Most L.O.’s use these letters instead of a Pre-Approval because they are quick and easy to complete. Generally speaking, information used in a pre-qualification is vague. The figures provided (such as loan amount and loan to value ratio) are only rough estimates stating what could possibly be approved through underwriting.

The Pre-Approval process is a more complete than a pre-qualification because it is a conditional approval from underwriting. Similar to the pre-qualification process, the LO speaks with the client, and checks credit status. Loan documents are usually submitted to the LO, and you now have the start to a full loan package. The loan is then run through initial underwriting. When the loan is approved via underwriting, there will be conditions (or stipulations) attached to the loan. This is stated in the content of the letter.

In the same thought, the content within the pre-approval letter gives more buying power to the client and the Realtor because it shows that they have actually been approved for the loan via underwriting. The conditions are plainly stated on the letter with all of the financing terms like financing percentages (loan to value ratio), highest loan amount available to the client when taking taxes and insurance into consideration, type of loan program, term of the loan, etc. Typically, the conditions will range from the appraisal to desk review of purchase. Again, these letters provide a better sense of security to both the buyer and the seller!

You are all probably reading this and saying to yourself that you are now going to be doing pre-approvals instead of pre-qualifications. Here are a two tricks on how you could use both letters and help retain your client and cultivate a solid relationship with a Realtor:

1. Use the Pre-Qualification process as an intro into your relationship with the client as well as the Realtor
2. Use the Pre-Approval as a “courtesy” when they are thinking about putting an offer on a home

Now, how can you start to really maximize your Pre-Qualification letters and process? You’ll have to read the next post for more which will be on Wednesday, January 2, 2008! Have a happy and safe New Year’s Eve!

Rapport Building with Home Improvement Clients

Over the past couple of years, equity has been extremely accessible to our clients. Times in our industry are changing with regard to guidelines and lending ability. However, that shouldn’t distract you from creating a relationship with your refinance clientele. I have touched on the refinance with debt consolidation clients in my previous post, and I would like to touch on the refinance with Home Improvements clientele as well for this post.

These clients are just like any other refinance client where they are looking for the loan program that fits their needs and overall goals. They might superficially want the best rates and fees, but it all comes down to relationships and rapport. I stress again, that finding out these goals and true needs in the first contact will help establish a better relationship and better rapport with your clients, and most likely make or break them from financing with you!

So, how will you be different from the mortgage broker down the street, and create that lasting relationship? You know…the one you get referrals out of? Simple, right?

Right! We ask the right open-ended questions that will trigger emotionally driven responses!

Put yourself in their shoes and get involved with what are their primary reasons of why they need/want to do the home improvements. Here are some key questions that might help emit poignant answers:

• Tell me about the project you’re looking to do
• What led you and your family to want to do this project?
• How will these improvement benefit you and your family (besides most likely adding value to the home)
• Tell me about the steps you’ve already taken for this (estimates, etc)
• What do you think are the next steps prior to the improvements? (more estimates, or are they just waiting to close…hint, if you phrase it right, there could be a potential buying sign here)
• So, if we take those steps, how long will it take before the project is completed? (This is a closed-ended question that will help you re-capture control of the conversation)

Once you start getting into how long the project is going to take and you know overall idea behind the improvements, you can keep a conversation going about pictures they can take with their family in their new living room, or maybe by the new in-ground pool. You can go into how good the barbeque chicken is going to taste and how nice it will be to use a grill on that new deck off the back door. There are a plethora of things that you can bring up in discussion that will help them paint a picture of what is to come after they finance with you!

They, most likely, didn’t get this feeling from the other guy down the street which puts you ahead of the game even before you’ve presented figures or programs, and even before you’ve taken a look at their credit situation.

It’s really that simple; to make a conversation out of this first contact instead a straight up, no-conversation, closed-ended 1003. And guess what? If your rate and fees are off a little bit, the client will most likely come back to you anyway because you truly know the value of their refinance. You’ve also shown that you care about their home, and you care about their unique financial and living situation.

Be different from the average Loan Officer, and create those relationships! I wish you all the best!

-Andy Scherer (Connecticut Mortgage Trainer)