One of the most common questions I get these days is:

"What is the difference between a pre-qualification and a pre-approval?"

Although the words may sound very similar, there is a huge difference. Savvy Realtors and mortgage professionals know how to use a pre-approval for the buyer's advantage.

Here is the difference...
A mortgage Pre-Qualification is a qualification based on what a buyer verbally tells a loan officer. This typically happens over the phone or on a secure loan application. Credit is usually pulled for a pre-qualification as well.

A mortgage Pre-Approval means that a licensed mortgage professional has personally reviewed your income/asset docs, credit, job history, and residence history for the past two years. When I issue a pre-approval letter I am saying "I have personally evaluated my client's financial picture and we are ready to buy when you find the right home.

Here is a good scenario to show the difference:
I work for Exxon and make $100,000 a year. My wife and I have $30,000 in the bank and we have two credit cards we pay off monthly. Credit is pulled and we have a 775 score which is great. A pre-qualification letter is issued so that you can go shopping quickly. On the surface this looks like a very easy loan and all the above information is true.

This scenario could change drastically when the mortgage professional has a chance to review the documents that support this information. Let's say that the $100,000 a year is made up of a small base salary and a bonus plan that just started this year. Also the $30,000 "in the bank" is a teacher's retirement account that cannot be touched for the next five years. These two factors can change the amount you qualify for drastically.

Why is all this important to you?

1.) Better Negotiation Position- Savvy Realtors and sellers know the difference! If two offers come in and one has a pre-qualification letter while another offer has a strong pre-approval letter from a local reputable lender... the pre-approval letter will trump the pre-qualification letter, sometimes even if the offer is a little less. In our office we love to let the sellers know that our buyers have done their homework upfront and we have a really strong loan.

2.) Clear Plan of Action- You will have a very clear understanding of the direction you are going with your financing. A good mortgage professional will meet you in person for a consultation, listen to your situation, and evaluate your financing options and put together a plan of action to get you into your new home. Just because you qualify for a $500,000 home doesn't mean that is the best loan for your situation.

3.) Less Stress & Quick Close- By going through a pre-approval upfront you are getting the majority of the loan process out of the way. Since we have gathered most of your documents upfront and have a mortgage plan of action, your mortgage lender has the ability to close quicker and reduce your stress when relocating your family. There is a lot involved in a move: packing, switching utilities, enrolling kids into school, changing your address, working full-time... It is much easier to update a couple of pay-stubs and bank statements when the time comes than searching for documents while you're going through major life changing events like buying a home.

The sad thing I see in our mortgage industry is that many loan originators do not clarify the difference between the two terms. They stop at the pre-qualification stage and wait until you get a sales contract... maybe it is laziness lack of experience, or just too busy but it has put many buyers and sellers in very sticky situations. By not having a mortgage pre-approval, all parties can be in jeopardy of losing money, missing closing dates, wasting time looking at homes in the wrong price range and extreme stress throughout the moving process. When buying a home make sure that you put yourself in the best position you can by getting a "True Pre-Approval".

Where would my life be without docusign?  It is kind of like asking yourself where would you be without a cell phone.  You do not realize how useful it is until you have to go without it for a day or two.  It has some great benefits to the loan originator and our clients.  The docusign system speeds up the loan disclosure process tremendously, saves paper, and helps keep our clients utilize their time more efficiently.  Here is one example:

Life without docusign: Clients would have to either come to the office and take time off of work to sign their loan application and banking documents or they would be e-mailed or faxed to them at the house or work.  Printing off your personal financial information at the work copier makes for an interesting scene as someone hits the printing button and races to the printer to pick up their personal financial information before their co-worker down the hall picks it up.

Life with docusign: We send our clients a secure envelope/e-mail with all their loan disclosures.  They access their documents via a secure password and sign their documents electronically while on their computer.  Once they finish a copy of the executed loan disclosures, a copy is e-mailed to them for their records and safe keeping.  The software even combines borrower and co-borrower signatures when they sign from different locations...  again saving paper and time.

In our office at Cherry Creeek Mortgage The Woodlands we utilize the docusign technology on almost every file.  VA loans still require original signature and some IRS documents do as well but for the most part it can be utilized on every file.  It is a great tool to use!

This post is a submission to the DocuSign/ActiveRain Electronic Signature Stories Contest. It's possible I will win a prize for writing this post. You could win a prize too by going to the Contest Announcement and sharing your own story.

1. Do Not change jobs - we will veritfy your employment the day of closing.

2. Do Not change your pay structure - we may need an additional pay stub.

3. Do Not apply for new credit - we may have to pull credit again before closing and inquiries can lower your score.

4. Do Not change your marital status.

5. Do Not deposit any sums into your bank that cannot be documented thoroughly - we may need an additional printout prior to closing to show funds are available or items have cleared.

6. Do Not dispute any items on your credit - no disputes allowed on credit reports - even if settled or paid.

7. Do Not charge up your credit cards "getting ready for the new house"- this could lower your credit score or increase your debt ratio.

8. Do Not let your driver's licesense expire - the notary at the title company requires current identification.

9. Do Not skip payments on your current bills to "save up for the house" - including rent - we might have to re-verify prior to closing.

10. Do Not spend money from your checking account unless absolutely necessary - we may ask for additional printouts from your bank to check funds.

11. Do Not make application for other loans for another property - we check a system called MERS which identifies any loans you have applied for.

12. Do Not put gift funds into your account - check with your loan officer on the procedure necessary.

Call our team first to get prequalified to ask questions; to be sure your loan gets done right! We promise to take GREAT care of you!

The Woodlands, TX - If you've been watching the economic news, you've probably noticed that market experts and traders have been keeping a close eye on the Commerce Department's Personal Spending and Personal Income reports. Obviously, those reports provide insight into the health of our economy, but did you know they also influence home loan rates? That's right, personal spending can actually influence the interest rates that are available when you purchase or refinance a home.

Here's why. Even though the government keeps pumping money into the system, nothing happens until that money is spent or lent - and passes from one hand to another or one business to another. The speed at which this money passes between parties is called the velocity of money.

With the job market still very sluggish, consumers aren't spending much money these days, and businesses are still reluctant to spend money to make investments in their business. With the present velocity at low levels, inflation remains subdued and that's good for home loan rates. That's because rates are tied to Mortgage Bonds and inflation is the archenemy of Bonds, so low inflation is good for Bonds and rates. However, once velocity increases, the excess money in the system will cause inflation - which is bad for rates, since even the slightest scent of inflation can cause home loan rates to worsen.

While we certainly want to see better economic recovery news in the near future, we have to remember that there's an inverse relationship between good economic news and Bonds and home loan rates. Weak economic news normally causes money to flow out of Stocks and into Bonds, which helps Bonds and home loan rates improve. Strong economic news, on the other hand, normally has the opposite result.

Currently, home loan rates are at a historically low level, but that situation won't last forever. That means now is an ideal time to purchase a home or refinance before the velocity of money - and rates - change.

A Qualified Mortgage Consultant Can Outline Your Options

Renters Have Much to Gain by Pursuing Home Ownership

Thursday June 23, 2011

The Woodlands, TX - Buying a home vs. renting is a big decision that takes careful consideration, as most mortgage consultants will agree. But the rewards of home ownership are great. For many years, purchasing real estate has been considered an extremely profitable investment. It is an achievement that offers a sense of pride, financial stability and potential tax advantages.

Yes, there are certain responsibilities associated with owning a home. Landlords will often argue the benefits of renting, and for obvious reason. If you are renting, you're helping them make their mortgage payment.

The numbers are staggering if you look at it this way. If you are paying $1,000 per month for an apartment, and you know your rent will increase 5% every year, then over the next five years you will pay your landlord $66,309. If you are currently renting a house, you may be paying much more than that each month. Either way, you gain no equity by shelling out this monthly housing expense and you certainly won't benefit when the property value goes up!

However, if you were to purchase your own home or condominium, you would be on your way toward building equity. By choosing a fixed-rate loan program, you can have the comfort of knowing that your monthly mortgage payment will never go up. In fact, you would have the option of refinancing to a lower interest rate at some point in the future should interest rates drop lower than the rate you'd currently be locked in at, and this would cause your monthly mortgage commitment to go down.

And not only would your own home give you added space, your own back yard and overall privacy-home ownership would also give you some tax advantages. Depending on your tax bracket, owning a home is often less expensive than renting after taxes. Interest payments on a mortgage below $1 million are tax-deductible, and your mortgage consultant should help you evaluate the tax advantages of various loan scenarios, and share this information with your tax consultant to glean feedback on your behalf.

To find the loan program that is right for you, your mortgage consultant will need to evaluate your monthly household income, current assets and savings, as well as any monthly obligations you may have for credit card payments, car payments, child support, etc. These prequalification factors, along with the report of your credit score, will determine how much house you can afford and what interest rate you will pay for financing. It is also important to let your mortgage consultant know what your future goals are, because this will help narrow down which loan option is the best fit for your long-term needs.

If there is any time to buy it is NOW! Why? Because home prices are low today. Low home values are surely not good for people selling homes but they are great news for people wanting to buy a home. Don't miss this opportunity to take advantage of the current market before home values rise.