PreApproval Letter Why Am I Being Asked For This

PreApproval Letter Why Am I Being Asked For This


Often agents will ask you if you have a pre-approval letter in hand when you begin to view homes.  Why? There are a couple of reasons:

  1. It assures the home seller that you are able to obtain financing and will be able to close the transaction;

  2. It assures the agent that you can afford the home you are asking to view (because it wouldn’t make much sense to show you a property listed at $350k and you can only afford a house in range of $150k, right?);

  3. It allows you better negotiation leverage when the seller knows exactly what you’re working with.

Now, let’s be clear. A pre-approval letter is not the same thing as pre-qualification. A pre-qualification is an ‘estimate’ of how much you can afford to spend on a home. Roughly, it gives all interested parties a ball-park figure that you can qualify for.  A pre-approval, on the other hand, specifies an actual loan amount for which you have been approved. What does that mean? A pre-approval amount informs all interested parties of the most you can afford to spend on a home, and contingent upon finding that home, the lender is assuring to finance that pre-approval amount.  In most instances, pre-approval letters are good for 90 days.

How does one get pre-approved?

Once you have identified a lender with whom you will work with, the lender will perform such tasks as checking your credit-worthiness, income, employment status, debt-to-income ratio and so forth. The lender, or perhaps an underwriter, will use this information to determine the amount of home loan you can secure.

What items are needed to get pre-approved?

  • Proof of employment

    • 2 years of W2 statements

    • 3 months of check stubs

    • 3 months of bank statements (checking & savings)

    • Credit card balances and minimum payments

    • Other outstanding loans and minimum payments

  • Your employment must be verified

    • The lender will want to talk directly to your employer

  • Proof of assets or ability to cover down payment and closing costs for the home

  • Good creditworthiness (Although there are some programs available for less than stellar creditworthiness, it is important to realize, the better your credit rating, the better the interest rates you’ll be able to get on your mortgage.)

  • Identity documentation of all buyers

    • Driver’s license

    • Social Security Cards

    • Proof of current residence

  • Other documentation (Once the processes are underway, things move very quickly. The lender will give you a list of any other documentation that may be needed to obtain an accurate pre-approval amount. This list can include such things as: child support or alimony payments, income from a part time job, verification of other working household members, if these items are included in finances to secure the mortgage.)

    • Be ready to gather and submit these documents quickly, so as to avoid any lapses or delays in getting your financing approved.

There it is in a nutshell: “Why Do I Need a Pre-Approval Letter?” Then the next question is or should be, “When do I seek to get pre-approved?” My best advice is when you decide you’re ready to buy a home.  Because the process can take some time and because lenders have other clients, I suggest contacting a lender as soon as possible. Keep in mind, it is one of the first things Real Estate Agents will ask you for.  Agents work best by optimizing their time.  To best do this, agents will work steadfastly to show you properties within your price range.  By doing so, agents do not get your hopes up for a property you most likely cannot afford, or waste anyone’s time showing properties that cannot be closed.  

If you are ready for these next steps and do not know how to choose a lender, contact me today, I can help. I’m click or phone call away. See contact information below.

Kenyatta Phillips Headshot
Phone: 334-595-9021
Dated: December 12th 2017
Views: 151
About Kenyatta: Kenyatta is a devoted Christian, wife, and mother. She enjoys reading, cooking, baking, and crafting...

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