When you’re ready to get a mortgage, the first thing you want to do is go to your lender and get pre-approval. Getting a pre-approval letter from your lender can make you feel really good about your chances of actually securing a mortgage and closing on your loan. That mortgage pre-approval letter is also important to your real estate agent and the seller when you put in an offer on a home. Some sellers won’t even look at offers that don’t come with a letter from a lender. They want to be sure you can afford their home, and they aren’t interested in going under contract if you can’t. That mortgage letter shows them you’re serious, and that you’ve already talked to a lender about your ability to get a mortgage.
What does a pre-approval letter say?
As you prepare for the purchase of a home, you’ll visit your lender and be given a letter telling you how much house you can afford. This letter isn’t a guarantee that you’ll get a mortgage, but it’s generally conditional. In other words, if your financial picture doesn’t get worse and everything you’re telling the lender is true, and the house you want to buy appraises for the right value, you may be granted a mortgage. Meeting all of the lenders conditions can seem stressful but most of them are routine, such as up-to-date proof of income. The pre-approval letter will have your name, the lender’s name, and the purchase price of the house you may be approved for, along with language to the effect that you’re being offered conditional approval.
Is this the same as a pre-qualification letter?
When you’re buying a house, you need to show the seller that you’re serious. If you ask your lender for a pre-qualification letter, you actually won’t be providing much information. These letters are not the same as a mortgage pre-approval letter, because they don’t require that the lender checks your credit. Basically, a pre-qualification letter means that you have gone to the lender and given them your information (income, debts, etc.). Then the lender takes you at your word, and based on that they determine whether you would likely qualify for the loan you want. Unfortunately, without checking your credit and verifying your information, it’s not possible for them to make an accurate determination of your real ability to get a mortgage loan.
What if you can qualify for more house than you’re trying to buy?
You really don’t want a pre-approval letter saying you can qualify for a house up to $300,000, if you only want to buy one that’s priced at $200,000. The seller doesn’t need to know that you can easily afford much more than their home, because that weakens your negotiating position when you’re trying to get them to come down on the price they’re asking. There’s a way around that, though. Once you find a house you want to buy, have your lender re-issue your letter showing the offered price on the home you’re interested in as your pre-approved amount. That shows the seller you can qualify for what you’re offering to pay, but doesn’t indicate that you could pay more for the home than you’ve already offered.
How much information does your letter give the seller?
The letter won’t give the seller any personal information beyond your name, which will also be on the purchase contract. Your social security number, credit score, and other factors about your life and personal ability to pay for the home will not be on your letter. That keeps the seller from getting information they really don’t need. What’s important to them is that a lender has stated that you can likely be approved for the loan you want to purchase their home. If you feel like your lender is including too much information on your pre-approval letter, be sure to ask them if some pieces of information can be removed. That will help protect your identity and keep your personal information safe while still reassuring the seller of your financial status.
What should you do if you have questions?
When you get a mortgage pre-approval letter you want to be sure you understand what the terms all mean, so you know what you need to do next. If you have questions about your pre-approval, your lender can help you answer them. Don’t feel like you can’t ask. Your pre-approval is a very important part of getting a home loan, and you should feel comfortable with it. If you find that your lender hasn’t approved you for as much as you expected, you’ll also want to find out why that’s the case. There may be something incorrect on your credit report, or another problem you’re not aware of. Determining that quickly can help you get any issues straightened out and proceed with your home loan.
2 Point Highlight
Getting a pre-approval letter from your lender can make you feel really good about your chances of actually securing a mortgage and closing on your loan.
When you get a mortgage pre-approval letter you want to be sure you understand what the terms all mean, so you know what you need to do next.
