As a Milton mortgage broker, I get asked about pre-approval letters quite a bit from clients. There’s a bit of misunderstanding with regard to whether they are necessary to buy a home, the difference between pre-approval and pre-qualification, and the benefits of having one. Having a pre-approval letter when you put an offer in on a home isn’t mandatory. However, it can improve your chances of getting the home you want.
What is a Pre-Approval Letter?
A mortgage pre-approval letter is a document that you get from a lender. It states the amount that they are willing to give you for your mortgage loan. While it isn’t a guarantee, it does go a long way with sellers and real estate agents because it shows that you are committed and able to purchase a home.
Pre-Approval vs. Pre-Qualification
There is some confusion around a pre-approval and a pre-qualification and they are not the same thing. A pre-qualification is merely a quick look at your financial situation and don’t carry much weight as a pre-approval letter with sellers and agents.
With a pre-approval letter, your credit and income are looked at a bit more in-depth by an underwriter and all of this is verified. It shows that you can pay for the mortgage loan.
To qualify for a pre-approval, one of our Milton mortgage brokers will put together a loan file using your credit score, credit history report, pay stubs, job, and residential history, and tax returns. This is what they will submit to lenders for a pre-approval. It will be looked at by an underwriter, who will determine if you qualify for a pre-approval. If you do qualify, the lender or loan officer will issue you a letter showing the amount they are willing to loan to you.
Benefits of a Pre-Approval Letter
Sellers and real estate agents see home buyers with a pre-approval letter as being ready and able to buy a home. It shows that you are a legitimate buyer and not someone who is just “window shopping” or wasting their time. If it comes down to you and other bidders who don’t have a pre-approval, the seller and agents are more likely to choose your bid on a home because it shows you are prepared to close a deal. It puts you in a better position.
If you are looking at homes and haven’t prepared yourself, you won’t know what amount you can get for a mortgage or what you can realistically afford to buy. You aren’t able to act on buying a home quickly because you will have to go through the whole process of getting pre-approved. Sellers want transactions to be done quickly, not be tied up for weeks in paperwork and waiting to see if a buyer really can afford the home.
If you’re looking to buy a home, contact a member of our Milton mortgage broker team by phone at (289) 270-1586 for your pre-approval letter. It will give you that edge you need to get the home of your dreams.