Ask Our Broker With Peter G. Miller
By Peter G. Miller
CTW Features
Question: We received a letter from a major lender that says we’ve been pre-qualified to refinance. Since we already qualify for financing, if we say yes, will the lender simply schedule closing and give us a check?
Answer: Unfortunately, that’s not how the system works.
To understand why, go back to the lender’s letter. It surely says on the front that you are pre-qualified to refinance your home. However, if you look very carefully, you will see that the important point about the letter is not the term “pre-qualify” – it’s the asterisks and fine print. In that fine print it will say you’ve been “pre-qualified” for financing, but not actually able to get a loan.
What happened here is the lender got your name from a credit bureau, data broker or other source. On the basis of your credit score and other factors, the lender then sent you an offer to sell you a loan.
Keep looking with that magnifying glass and you will see that the offer is not without conditions. Before giving you a penny, the lender must determine you have the ability to repay the loan. That means while you qualify to get the lender’s offer, you may not qualify for the actual financing being offered.
What more is required? Nothing less than a full-blown mortgage application.
But wait – there’s more.
Even if you meet all the financial standards required by the lender, you still may not qualify for financing. That’s because the lender will want to get the property appraised to assure that it has enough value to justify the mortgage. There must be a certain loan-to-value ratio (LTV), say 80 percent.
For example, imagine that the property can be appraised at $200,000. If the lender will provide financing equal to 80 percent of the property’s value, a qualified borrower can get a $160,000 mortgage.
You might see that the lender’s letter says that not only do you pre-qualify for a given rate you also pre-qualify for a given amount. But – again – take a close look at the letter. No doubt it says somewhere that the rate is subject to change. Also, that loan amount mentioned in the letter may require a certain LTV. If the lender says it will only accept a 70 percent loan-to-value ratio – an extremely conservative LTV that assures the loan is virtually risk-free – then you will get a much smaller loan than would be the case with 80 percent or 90 percent financing.
If the letter is interesting, if you think now is a good time to refinance given today’s rates, that’s fine. Use the pre-qualification letter as a benchmark, speak with a number of local lenders and see what options are available to you.
© CTW Features
Peter G. Miller is author of “The Common-Sense Mortgage,” (Kindle 2016). Have a question? Please write to [email protected].

