The difference between a Pre-Qualification, Pre-Approval & Pre-Commitment

What's the difference between a Pre-Qualification, Pre-Approval and Pre-Commitment when it comes to buying a house?

What are the advantages/disadvantages of each?

How can my offer compete with a cash offer?

These are the questions that Jason & Jeff tackle today as they talk about the differences between each of these three types of pre-financing options. They also discuss how each of these will affect your competitiveness when it comes to buying a house. 

Transcript of Video:

- Hi, I'm Jeff Chubb with the REN Network and my team the Chubb Realty Group, we're brokered by EXP Realty. And today we're with Jason Bonarrigo of RMS Mortgage to talk about the different levels of pre-qualification, pre-approval, or pre-commitment. So Jason, take us away. What's the difference between the three?

- The loaded question.

- Yeah.

- So, I mean.

- 'Cause everybody says pre-approval,

- Pre-approval well that's,

- I'm pre-approved.

- That's what you need. You need a pre-approval and the difference is a pre-qualification is essentially, I'm showing my age here a little bit, but that's kind of old school. It's what we did in the beginning before the credit market really started contracting, over the past five to 10 years. Pre-qual was like, hey I'm just calling about this house. What's your rate? What's your name? Maybe verify a credit score or something, but we wouldn't collect any documents or anything. So, essentially everyone including yourself and realtors determined that essentially that wasn't really worth the paper it's written on, especially in a competitive market, right? So, essentially that's just all let's just call it off the board. Sometimes someone will slip and call it a pre-qual. Hey, I'm being pre-qualed, essentially they mean pre-approved. So, you have to get pre-approved in order to buy a house.

- So, no heavier lifting for pre-qualification. No, no, no, not really. No, no, no, I mean it's essentially again, online application takes about 10, 12 minutes.

- No verification?

- No, we ask for a pay stub or something like that, but and that's down the line. But I mean, we do it pretty quickly online and we get it done quickly.

- So, pre-qualification, pre-approval, what's the difference?

- Pre-qual is basically no verification at all. We don't verify anything. We just have a quick conversation, but to be quite honest with you, Jeff, I mean I don't think any of us now really issue anything on a pre-qual, because it's just if they're not ready to move to pre-approval it's just like, hey, let's stay in contact, I'm happy to work with you, but there's nothing to see here, right? Because it's not, there's nothing to see here. They're not gonna be able to see homes, they're not to be able to work with a good realtor like yourself. So it's just, and we try to explain that obviously quickly to them and make them understand why they need to pre-approve. Not in a pressure sense, but just, hey, let me explain to you why this is the starting point, that's gone away and you need to be basically, essentially certified with a pre-approval.

- Okay, so but, what do I need to give you in order to become an actual true pre-approved buyer?

- You would need to go onto my online application. Like I said earlier,

- Right. take about 10 minutes and then I'm gonna say Jeff, oh, you're a W2 employee. Okay, great. I just need a pay stub or two and a copy of your last year's W2.

- And that's really, that's the difference between pre-qualification to pre-approval?

- 'Cause now I verified your income, Through the application, I've verified your credit.

- And you've pulled credit?

- I pulled credit in conjunction with that. And then on the application, you've listed your assets. So I have the big three, right? Which is job stability, credit score, and down payment.

- Those are important.

- And that's all I need. You know, obviously if I feel like there's something going on there, we're going to take a little bit of a deeper dive and ask some questions and help the consumer, but other than that, and if everything looks good, boom, here's your letter, you're ready to go.

- So, something new, and it's because the market's just trending pretty crazy. So pre-commitment, talk to me a little bit about what we're doing here with pre-commitments and why they're so important.

- It's pretty, it's pretty cool. It's pretty exciting. I mean, what we're doing is essentially we're, I don't want to get into the details of the whole mortgage commitment, but obviously once you buy a house or go to purchase and sale, you have that date which is called a contingency date or a commitment date. And that's when your loan has to be a 100% approved.

- Right.

- All set, ready to go. Your deposit is no longer at risk. It's a hundred percent guaranteed. So, what we're trying to do is kind of take that piece earlier, and basically really, really certify the borrower. So, we're taking those pay stubs, those bank statements, that credit report, and we're submitting it up to underwriting before they buy a house. So, that way they are truly are pre-committed and pre-certified. So they're walking around with a certified commitment letter. And the only thing they'll be subject to is obviously buying a home.

- Right.

- And then in conjunction the appraisal would be the last big piece that anyone would feel uncomfortable with as far as moving forward and being aggressive. As you know, which is the biggest thing. I mean you can talk about in this really competitive market.

- So, perfect. So, we have pre-qualification, lowest barrier entry, if you will. we have pre-approval, which is kind of our normal, hey I'm, pre-approved, let's go look at some houses. And then we have the pre-commitment, like, hey this market's so crazy. I'm just looking for a little extra advantage over other buyers where an agent like myself gets to really stress to the other party, like, hey, these guys are awesome and ready to go. Like, they are more secure than your pre-approved buyers.

- True.

- So, those are your three ways in order to get approved from a mortgage aspect and help you for the buying process and help you really go see houses and be more competitive. So, should you have any questions about those three things, reach out to Jason Bonarrigo. Jason, what's your phone number?

- 413-5038.

- And you know, ultimately reach out to him, you know, answer the questions. He'll answer the questions, ask the questions.

- No pressure.

- No pressure, you know, you never have to sign up for, by the way, no pressure, right? So, if I get pre-approved with you, do I have to use you as a mortgage lender?

- Yes. No, no, you don't. I mean, of course we would prefer that, but no, of course not. I'm here to help you. I'm here to guide you. I'm here to basically educate you through the process and make you feel comfortable.

- Truly, no pressure.

- No, no.

- Is what it comes down to.

- You know, Jeff, as I learned early on in my career that I don't like it when people do that to me.

- Right.

- I've been on the other side of it, whether, you know whatever it is, if you're buying a car or something like that. So, I learned pretty early on that I wasn't gonna do that to my consumers. And I would like to think it worked out pretty well.

- Why wouldn't they reach out to you, right?

- Yeah exactly.

- So, and if you have any questions in regards to a home buying, feel free to reach out to my team and I, Jeffrey Chubb and the Chubb Realty group. You can reach us at 480-2600 or visit us online at www.boston2.com. Thanks for watching. Let either of us know, should you have any questions? And we look forward to hearing from you.

- Thank you.