Why Get Pre-Approved?

Before you begin your home search, you should obtain a qualifying letter from a lender indicating your financial ability to purchase a home.

There are 3 types of qualifying letters you can obtain from a lender. They are a “Pre-qualification letter”, a “Pre-approval letter” or a letter that indicates you are “Approved subject to” minor conditions.

1. A “Pre-qualification” letter is a good letter. Pre-qualification acts as a dry runof the loan application process. The mortgage lender will use details you verbally provide about your credit, income, assets and debts to arrive at an estimate of how much mortgage you can afford. The whole process may take only minutes or a few hours at most, and is free. This is non-bindingto the lender because the information you provide has not been verified, but, does serve as an indication to potential sellers of your general creditworthiness.
2. A “Pre-approval” letter is a better letter. This type of letter indicates you have verbally provided information about your credit, income, assets and debts, and the lender has investigated your credit report. Based on that information the lender will issue a letter indicating you’re the loan amount they will lend you. If you are serious about buying, this is the first step towards getting into your new home. These days most sellers will NOTaccept an offer without at least a Pre-approval letter.
3. A letter stating you are “Approved subject to” minor conditions is the best and strongest evidence of your ability to obtain a mortgage loan. This letter indicates the lender has approved your credit report and the documentation you have provided them, regarding your income, assets and debts. Typically the only item left to do is have an appraisal of the home you want to buy.

   In the event you make an offer on a home and other buyers have also done so, a letter from your lender stating you are “Approved subject to” only the appraisal far outweighs the other two types of letters.