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   ARTICLE   |   From Scotsman Guide Residential Edition   |   May 2018

The Power of Being Prepared

In a competitive market, a strong pre-approval process is essential

As the real estate market and mortgage industries continue to evolve, it’s almost certain that the nature of the business will remain competitive. This creates a compelling reason for mortgage originators and the lenders they work with to differentiate themselves in any way possible to attract and retain homebuying customers.

A solid, well-defined mortgage pre-approval process is one way originators can distinguish themselves from the crowd. Not only does an effective pre-approval benefit the originator and borrower, but it also can be an advantage for an originator’s Realtor partners, given it enhances their negotiating position with home sellers.

Especially in a market where homebuyers are plenty but housing inventory is scarce, originators should understand that it’s more crucial than ever to help their clients stand out from the crowd and present compelling offers. To stay competitive, mortgage originators should consider facilitating three basic levels of pre-approval.

Pre-qualification vs. pre-approval

A pre-qualification is the first-level preparation and simply involves a conversation between the loan originator and the individual interested in securing a home mortgage. It’s the first step in determining if the potential homebuyer is in the ideal financial place to begin the homeownership process.

This conversation also should give prospective buyers an idea of the approximate mortgage amount they may qualify for. Once pre-qualified, these individuals would ideally be advised to take the next step of getting a pre-approval.

For some clients, however, a simple pre-qualification might be adequate. Someone who is not quite ready to house hunt, for example, but who anticipates buying a home in the next year or so, may benefit from a pre-qualification.

The second-level preparation, a pre-approval, is distinct because it involves a more detailed financial analysis. During a pre-approval, the lender digs deeper into prospective borrowers’ overall profiles, and completes an analysis of their credit, financial and employment information.

A pre-approval allows potential borrowers to have a more specific idea of how much “house” they can afford. It also should give them access to pre-approval letters, which can be used when making offers. Individuals who are actively searching for a home, and who want to present a strong offer that is backed by a reputable lender — but who are not ready to submit full documentation for the underwriting process — could benefit from the pre-approval process.

Credit approval

Known as the “gold standard” in mortgage pre-approvals, a credit approval entails an in-depth analysis of the prospective borrower’s financial, credit and employment profile. During this review, the entire underwriting process — with the exception of the property appraisal — is completed. For individuals serious about purchasing a home, this is the next best thing to a cash offer, and it can significantly speedup the closing process.

Originators should seek out companies that are one step ahead in terms of their pre-approval processes. 

As a loan originator, if you have a client who is serious about getting into a home quickly and who wants to make a highly compelling offer on a property, recommending a credit approval is your best bet. In a competitive real estate market where inventory is limited, this level of pre-approval gives homebuyers a much better chance of having an offer accepted.

In most cases, a credit approval will be the ideal choice because it benefits everyone involved. For the homebuyer, a quickly accepted offer allows that individual to close the loan and get into a new home sooner. For the lender and loan originator, a smooth and efficient loan process creates happy customers who are more likely to refer their services to others. For Realtor partners, a quickly accepted offer also boosts their business and word-of-mouth reputation.

When consulting with potential homebuyers, loan originators should emphasize the importance of obtaining a credit approval. For most customers, this will be an obvious choice. Although a credit approval requires more effort and time upfront, it almost guarantees a quick, smooth closing process after the offer is accepted.

In fact, all mortgage originators and the lenders they work with should offer a credit-approval program, if they aim to stay competitive and to distinguish themselves from the crowd. By creating a more streamlined loan process and setting themselves up for success in terms of closing loans quickly, lenders and originators alike are far more likely to retain their valued clients.

Technology enhancement

The pre-qualification, pre-approval and credit-approval process all can be enhanced greatly by the use of innovative technology. Giving borrowers access to a website or mobile app where they can access their pre-approval letters, for example, is a huge plus.

By allowing your homebuyers to customize a pre-approval letter with a property’s address and an offer amount, you will equip them to present a compelling offer. Plus, you will empower them to create and print these letters at anytime, anywhere — which is ideal for situations when they are ready to make an offer immediately.

Technology, such as a mobile app, also allows customers to keep in touch easily with their loan originators throughout the pre-approval or credit-approval process. When everyone is updated in real time, this creates a fluid process. The fact remains: This is a fast-paced society, and technology is only making processes faster. If originators and lenders don’t keep up with the pace, they will find themselves falling significantly behind the pack.

•  •  •

When it comes to finding a lender that suits their needs, mortgage originators should seek out companies that are one step ahead in terms of their pre-approval processes. Of course, other areas, such as technology, niche-product offerings and company culture, also should be a high priority. An efficient pre-approval process is an invaluable way, however, to ensure a positive and smooth loan experience for every customer.

As a loan originator, it’s vital to offer your home-buyers the best options possible, and finding a lender that supports your high expectations is a “must.” When your customers can get into their new homes quickly, and your Realtor partners are pleased with the results, your business will inevitably grow and expand. So, when it comes to the basics, such as pre-approval and credit-approval processes, ensure that your lender supports your needs — and, ultimately, the needs of your homebuyers.


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