Best Egg "Pre-Approved" Loan Offer: Why Not Say "Pre-Qualified?"

Best Egg Pre-Approved Loan Offer

After all these years, I can't believe that lenders are still allowed to use this language:

"Pre-Approved"

I'm old, and I've done plenty of borrowing in my time, so I know that the phrase "you're pre-approved" is a very unethical trick lenders use to make you think that your financial background has already been vetted, and your loan application is virtually guaranteed to get a green light. I know better.

But what about the young, first-time borrower with a limited or nonexistent credit history?  They see the "pre-approved" hook, they apply, they get turned down, and the lender ends up getting something very valuable: all of the rejected borrower's most sensitive, identifying information (name, address, Social Security number, age, etc.) Not good.  Not good at all.

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OK, so here's an explainer of a mortgage "pre–approval letter," by the good folks at TheMortgageReports.com:

"...Having a pre–approval letter gives your offer a lot more clout, because the seller has solid evidence you’re qualified for a loan to purchase the home.

Realtors generally prefer a pre–approval letter over a pre–qualification letter, because a pre–approval has been vetted to prove your eligibility.

Note: getting “pre–qualified” is different from getting a “pre–approval.”

Both terms mean a lender is likely willing to loan you a certain amount of money. But Realtors generally prefer a pre–approval letter over a pre–qualification letter.

That’s because pre–qualification letters are not verified. They’re just an estimate of your budget based on a few questions.

A pre–approval letter, on the other hand, has been vetted against your credit report, bank statements, W2s, and so on. It’s an actual offer from a mortgage company to lend to you – not just an estimate.

You are NOT required to stick with the lender you use for pre–approval when you get your final mortgage. You can always choose a different lender if you find a better deal..."

And this is exactly what ALL banks should do: use the term "pre–qualified" instead of "pre-approved," and include a detailed explanation of what it means, not in tiny, eye-straining text and the end of the last page, but in bold, and right next to the first use of the term.  Amen.

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