Answering Common Borrower Questions: “What Is a Mortgage Pre-Approval?”

Your answers can inspire, educate, and empower borrowers.

As a mortgage professional, you know all the ins and outs of the pre-approval process. But for a lot of borrowers? A pre-approval is downright intimidating.

That’s because they just don’t know the basics. For example, they may not know that they can potentially be pre-approved even with imperfect credit, that a pre-approval letter doesn’t lock them in with one specific lender, or even what might make a pre-approval different than a pre-qualification.

The fact is, while you spend your days helping borrowers finance dream homes and know all the acronyms like the back of your hand, the average American faces startlingly low levels of financial literacy.

 So, it’s time to do a little educating!

Let’s dive into some of the most common borrower questions surrounding pre-approvals and their comprehensive answers:

“What Is Mortgage Pre-Approval and Why Is It Important?”

Of course, pre-approvals may be the bread and butter of a mortgage professional. But a lot of your clients are probably flying blind. That’s especially true if they’ve also heard the term ‘pre-qualification’ thrown around…

Explain that pre-approval is a critical step in the homebuying process and be sure to touch on how it can help clarify a realistic budget and strengthen their position in a competitive market.

 Don’t forget to clarify that they’re not formally applying for a loan just yet, either. This should take some of the pressure off and ease any anxieties.

“How Does Pre-Approval Differ from Pre-Qualification?”

As mentioned, some of your borrowers are sure to be at least a little bit confused about the potential differences between pre-approval and pre-qualification. It doesn’t help that some media outlets, homeowners, and even mortgage indutry professionals may use these terms interchangeably.

Sit down with clients to go over the similarities and differences in-depth. But be sure to use layman’s terms. For example, a pre-qualification may be a soft credit pull and can be ideal for borrowers looking to estimate their homebuying budget. On the other hand, a pre-approval likely involves a hard credit pull for lenders to evaluate and verify a borrower’s financial condition and creditworthiness. It is important to emphasize that a pre-approval might be the smarter choice for borrowers serious about purchasing soon.

Investopedia offers an in-depth article complete with straightforward graphics if you’d like to send them home with something to study.

“How Do I Get Pre-Approved for a Mortgage?”

Once borrowers have a grasp on the “what” and the “why,” it’s time to move on to the “how.”

As usual, take some time to list out the documents and files the client will need. Then, you have an opportunity to go above and beyond.

Make a point to thoroughly explain how each piece of the puzzle comes together for the pre-approval. Clarify the reasoning behind the projected timeline, how and why one single misstep could spell trouble, and definitely leave plenty of time for questions.

Remember, while they certainly could just drop the paperwork with you and wait, this is a key opportunity to build financial literacy and understanding.

“Can I Get Pre-Approved with Less-Than-Perfect Credit?”

This is a very brave question for borrowers to ask, so you’ll want to be empathetic in your answer.

Consider a two-pronged approach. In cases like this, you can:

• Explain that, yes, borrowers with less-than-perfect credit may still be able to be pre-approved. Definitely dive into the drawbacks, though. Explain the difference between favorable and unfavorable loan terms, perhaps even running some sample numbers to illustrate cost.

• You may want to suggest steps the consumer might think about taking to improve their credit score before the pre-approval process. A certified credit counselor may be a great starting point for the borrower. Depending on the borrower’s level of knowledge, this might include clarifying the highest impact factors, connecting them with a credit coach or other professional, or simply providing some emotional support.

Basically, don’t forget that part of your role includes exercising empathy. After all, borrowers with low credit may be feeling regretful, self-conscious, or anxious even during pre-approval.

“How Long Does Pre-Approval Last, and Can It Be Renewed?”

As you’re well aware, some buyers just aren’t ready to move as soon as the pre-approval comes through. Be prepared to field a few questions about time-sensitivity and options moving forward.

Share the usual information, like the fact that pre-approvals typically have a specific duration, often up to 90 days. Then, make a point to schedule specific touchpoints so you can regularly check back in with the client. Perhaps that’s a weekly call or a bi-weekly email?

The fact is, life happens. It’s not uncommon for a client to blink and be outside those allowed 90 days.

“Can I Switch Lenders After Getting Pre-Approved?”

Ah, the old switcheroo! Remember that, while you’re working day-in and day-out in home financing, all of this is brand new to many borrowers. A home is likely the largest purchase they will ever make, so a case of cold feet isn’t exactly rare.

To avoid multiple pre-approvals, clarify up-front that a pre-approval letter doesn’t lock the borrower in with any one lender. Knowing this information right out of the gate might help the client feel more at ease and less caged in. It also doesn’t hurt to reiterate that the two of you will work together to find the right lender and loan program, one that best aligns with their budget, goals, and needs.

Don’t forget a heads up, though, that if they get swept up in the process and there are changes last minute, there is the potential for a deal to fall through or become significantly delayed. Clarify that it’s certainly possible to switch lenders after getting pre-approved but, in some cases, may not align with their timeline or ideal outcome.

Pre-Approval: Everything Your Borrowers Need to Know

So, there you have it: Some of the most common borrower questions relating to mortgage pre-approval, their comprehensive answers, and a few opportunities for you to go above and beyond.

Now, are you ready to repeat this process with about fifty more mortgage terms? Don’t worry, we’ll be here to help every step of the way!

Ready to have the latest mortgage insights delivered directly to your inbox? Sign up for the wemlo newsletter.