Pre-qualification
Encyclopedia
Pre-qualification is a term of art in retail finance, and means that a loan officer has taken some information from the borrower, and made a tentative .
With a pre-qualification, the borrower is typically asked for social security number
or other identifiers, A borrower will give their employment
, income
and asset
information and the amount of current monthly debt
. In addition a borrower is asked about their general credit worthiness.
Based on this quick work up the borrower will be told that they pre-qualify for a certain loan amount. For example, if the borrower makes $15/h or $2600/month this is then calculated to an industry-standard ratio of debt to income, for example 36%. So if a borrower makes $2600/month they would be pre-qualified at a total debt of $936 (this includes any monthly payments, including car & credit card
min. amount; along with the proposed payment of principal, interest
, tax
es and insurance
).
A pre-qualification will contain the credit scores and much more information, including the social security number. The social security number is used to get a credit report. This is a requirement because you must have a credit score determination prior to any vetting of information, as that is one of the absolute factors required to give a proper pre-qualification.
Pre-qualification simply denotes a process that has not yet been underwritten to the guidelines of a particular lending institution. 36% debt ratio (the percentage of your GROSS income that the underwriting will allow you to spend on your mortgage payment, more commonly referred to as DTI) as referenced, above, is required for a true conforming loan type.
Typically, subprime lenders will allow 50% DTI. Common monthly debts used for calculating DTI are your mortgage (or new mortgage payment), auto payment(s), minimum credit card payment(s), student loans, and any other common monthly or revolving debt that is reported on your credit bureau report. Regarding a refinance, monthly debts that are being consolidated are not taken into consideration, because they are built into the DTI by way of the new loan amount payment.
Other factors included in determining your pre-qualification status, besides the basic DTI issue, are: monthly gross disposable income (what you have left after all of your monthly debts are paid), number of open tradelines (credit lines) you have, and assets. Other factors that are important, because they may affect the rate of interest, which directly affects the DTI by changing the mortgage payment amount are: property type, property use, property location, loan-to-value ratio (LTV),what state the loan is in, credit score, purpose of loan, whether or not you are a first time home buyer, if the refinance has a "cash-out" amount requested, whether or not you've had a bankruptcy or foreclosure, how many times you have been late on a mortgage payment, your income type and the way you will verify your income (W-2, tax returns, bank statements, etc).
Pre-Qualification is the procedure of one company
attempting to become a preferred supplier of another through a form of advertising
.
Traditionally the company seeking preferential status would write a letter of introduction often covered a brochure of product details and if possible a reference from a previous contract.
The potential customer would then if agreeable send out a questionnaire and in some cases a separate documents list in an attempt to assertion the financial stability, product line, quality and reliability of a company.
In more modern practices a potential supplier fills in a questionnaire online to submit the details needed. In most cases this then opens dialogue between the two companies for further information to complete the submission.
If a company is successful then when a customer requires a service it opens the project to bids from the relevant suppliers. The most attractive of which gets the contract.
In international business
this process is at times complicated by laws in a country that state a foreign company must employ a local agency
to handle their business.
racing in the late 80's and early 90's when there were over thirty entries to each race. The goal of this extra session was to reduce the field to 30 cars for the main qualifying draw. The top 13 teams from the previous two half seasons were exempted.
With a pre-qualification, the borrower is typically asked for social security number
Social Security number
In the United States, a Social Security number is a nine-digit number issued to U.S. citizens, permanent residents, and temporary residents under section 205 of the Social Security Act, codified as . The number is issued to an individual by the Social Security Administration, an independent...
or other identifiers, A borrower will give their employment
Employment
Employment is a contract between two parties, one being the employer and the other being the employee. An employee may be defined as:- Employee :...
, income
Income
Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings...
and asset
Asset
In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset...
information and the amount of current monthly debt
Debt
A debt is an obligation owed by one party to a second party, the creditor; usually this refers to assets granted by the creditor to the debtor, but the term can also be used metaphorically to cover moral obligations and other interactions not based on economic value.A debt is created when a...
. In addition a borrower is asked about their general credit worthiness.
Based on this quick work up the borrower will be told that they pre-qualify for a certain loan amount. For example, if the borrower makes $15/h or $2600/month this is then calculated to an industry-standard ratio of debt to income, for example 36%. So if a borrower makes $2600/month they would be pre-qualified at a total debt of $936 (this includes any monthly payments, including car & credit card
Credit card
A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services...
min. amount; along with the proposed payment of principal, interest
Interest
Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....
, tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
es and insurance
Insurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...
).
A pre-qualification will contain the credit scores and much more information, including the social security number. The social security number is used to get a credit report. This is a requirement because you must have a credit score determination prior to any vetting of information, as that is one of the absolute factors required to give a proper pre-qualification.
Pre-qualification simply denotes a process that has not yet been underwritten to the guidelines of a particular lending institution. 36% debt ratio (the percentage of your GROSS income that the underwriting will allow you to spend on your mortgage payment, more commonly referred to as DTI) as referenced, above, is required for a true conforming loan type.
Typically, subprime lenders will allow 50% DTI. Common monthly debts used for calculating DTI are your mortgage (or new mortgage payment), auto payment(s), minimum credit card payment(s), student loans, and any other common monthly or revolving debt that is reported on your credit bureau report. Regarding a refinance, monthly debts that are being consolidated are not taken into consideration, because they are built into the DTI by way of the new loan amount payment.
Other factors included in determining your pre-qualification status, besides the basic DTI issue, are: monthly gross disposable income (what you have left after all of your monthly debts are paid), number of open tradelines (credit lines) you have, and assets. Other factors that are important, because they may affect the rate of interest, which directly affects the DTI by changing the mortgage payment amount are: property type, property use, property location, loan-to-value ratio (LTV),what state the loan is in, credit score, purpose of loan, whether or not you are a first time home buyer, if the refinance has a "cash-out" amount requested, whether or not you've had a bankruptcy or foreclosure, how many times you have been late on a mortgage payment, your income type and the way you will verify your income (W-2, tax returns, bank statements, etc).
Inter-business interaction
When in context of BusinessBusiness
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
Pre-Qualification is the procedure of one company
Company
A company is a form of business organization. It is an association or collection of individual real persons and/or other companies, who each provide some form of capital. This group has a common purpose or focus and an aim of gaining profits. This collection, group or association of persons can be...
attempting to become a preferred supplier of another through a form of advertising
Advertising
Advertising is a form of communication used to persuade an audience to take some action with respect to products, ideas, or services. Most commonly, the desired result is to drive consumer behavior with respect to a commercial offering, although political and ideological advertising is also common...
.
Traditionally the company seeking preferential status would write a letter of introduction often covered a brochure of product details and if possible a reference from a previous contract.
The potential customer would then if agreeable send out a questionnaire and in some cases a separate documents list in an attempt to assertion the financial stability, product line, quality and reliability of a company.
In more modern practices a potential supplier fills in a questionnaire online to submit the details needed. In most cases this then opens dialogue between the two companies for further information to complete the submission.
If a company is successful then when a customer requires a service it opens the project to bids from the relevant suppliers. The most attractive of which gets the contract.
In international business
International Business
International business is a term used to collectively describe all commercial transactions that take place between two or more regions, countries and nations beyond their political boundary...
this process is at times complicated by laws in a country that state a foreign company must employ a local agency
Agency (law)
The law of agency is an area of commercial law dealing with a contractual or quasi-contractual, or non-contractual set of relationships when a person, called the agent, is authorized to act on behalf of another to create a legal relationship with a third party...
to handle their business.
Motor racing
The term "pre-qualifying" was also used in Formula OneFormula One
Formula One, also known as Formula 1 or F1 and referred to officially as the FIA Formula One World Championship, is the highest class of single seater auto racing sanctioned by the Fédération Internationale de l'Automobile . The "formula" designation in the name refers to a set of rules with which...
racing in the late 80's and early 90's when there were over thirty entries to each race. The goal of this extra session was to reduce the field to 30 cars for the main qualifying draw. The top 13 teams from the previous two half seasons were exempted.