Getting a mortgage is often one of the most stressful parts of buying a home. Before you even start looking for a house, it’s a very good idea to be aware of how much you can spend. That way, you’ll be able to look only at houses that meet your budget. You don’t want to fall in love with a house that’s out of your price range. You also want to show the seller that you’re serious and that you can buy the house you’re offering on. You generally do that with a mortgage letter, which you provide to your agent and then they send with the offer. The two different types of mortgage letters are preapproval and prequalification letters. Knowing the difference between the two is extremely important, and you want to get it right so it doesn’t end up costing you a house.
Why should you get a mortgage letter?
When it’s time to buy a house, you want to make sure you have a mortgage letter so you can be prepared. Your agent will probably ask for one, and the seller may not accept or even entertain any offers that don’t have a letter attached. By getting a mortgage letter from your bank or other lender, you’re showing that you have the potential to actually qualify for the mortgage to purchase that house. Otherwise, you could offer on any house you want to, and even go under contract, but the seller wouldn’t have any way of knowing whether you could buy the house. Sometimes mortgages and home deals can still fall through, but without a mortgage letter there isn’t even the hint of a guarantee that the buyer can actually make the purchase.
Do you have to have a letter to offer on a house?
When you place an offer on a house, you don’t necessarily have to have a mortgage letter. It’s important to remember, though, that the seller really has the power at the beginning of the negotiation. If the seller doesn’t want to see offers without a mortgage letter, they certainly have the right to feel that way. It could keep them from getting their house sold as quickly, but it could also keep them from getting an offer that won’t work out because the buyer can’t get a mortgage. The kind of letter you provide with your offer also matters. There’s a big difference between a preapproval and a prequalification letter, and understanding the difference can help you make sure that you get the right letter for your needs.
What is a prequalification?
A prequalification is the first (and easiest) letter you can get from a bank or other lender. You get this letter by going to the bank and talking to them about your financial situation. You’ll give them information on who you are and how much money you make. You’ll also give them debt information, so they have an idea of what you can afford. Then they will tell you if they think you can qualify for a mortgage, based on what you provide to them, and how much you want to spend on the home you’re interested in. You can get a letter from the lender that says you’re prequalified, and you can take that letter with you to your agent, who will pass it along to the seller with your offer.
What is a preapproval?
A preapproval is the next step beyond a prequalification. You will need to do everything that you have to do for a prequalification, along with filling out an official mortgage application. You will also provide more detailed information about your finances (both income and debts), and consent to have your credit checked. The lender will take a look at everything, and then will decide whether you could likely be approved for a mortgage. Sometimes a preapproval is also called a conditional approval. You will also be told exactly how much you should be able to borrow, so you know what price range you want to look in when you house hunt. The letter you receive from your lender will go to your agent, and to the seller when you put an offer on a house.
Are both letters just as good as one another?
Don’t make the mistake of getting the wrong letter because that can hurt your chances of getting the house that you really want to buy. To make sure you get the chance to buy the house you want, you need a preapproval letter. The two letters are definitely not the same. Talk to your lender right from the very beginning of the process, and make it clear that you want to be preapproved before you begin your house hunt. You can get a prequalification easily from nearly any lender, but it really doesn’t mean anything. A preapproval means that the lender has checked your credit and your financial state. That lender is relatively sure, at that point, that you can qualify for a mortgage for a set amount of money.
If your lender offers to give you a prequalification letter, you may as well politely refuse. Insist on a preapproval letter instead. That way, the lender will have already checked your credit and other financial information, and can issue you a conditional approval for the price range in which you want to buy. That can help the seller take your offer a lot more seriously when you find a home you really want to purchase.
2 Point Highlight
When it’s time to buy a house, you want to make sure you have a mortgage letter so you can be prepared.
Don’t make the mistake of getting the wrong letter, because that can hurt your chances of getting the house that you really want to buy.
