There are multiple advantages when shopping for a home with a pre-approval letter in your pocket. In fact, it’s almost standard practice especially in areas where it’s a seller’s market and the seller has the upper hand during negotiations as homes are selling relatively quickly and for a higher price. Multiple offers in areas where real estate is on the move is common and sellers review offers for list price or even offers above what the seller is asking. That means a buyer needs every advantage when making an offer when home sales are brisk and having a pre-approval letter is one of those advantages. Other than making an all cash offer, the pre-approval just might be the best one. What exactly is a pre-approval and what does it provide?
A pre-approval is a particular status of a loan application. A pre-approval is signified by a letter composed by a loan officer on a lender’s letterhead. A pre-approval means the borrowers have provided third party documentation of certain elements in a loan file. A pre-approval means all that’s needed to get the loan to the settlement table is a property address. When a loan officer issues a pre-approval letter it’s after the loan application has been reviewed, credit report has been ordered and approved and the borrowers meet the minimum credit score requirements.
A pre-approval letter is issued only after the lender verifies income and employment and the borrowers have provided bank or investment statements proving they have sufficient funds available to close in a particular transaction. The loan officer will provide the borrowers with a pre-approved loan amount so they know the price range to shop for but the pre-approval letter won’t have any specific loan amount listed only that the borrowers are good to go and are ready to close. Borrowers with a pre-approval letter can close more quickly than borrowers who have not submitted their income and asset documentation.
Today, before anyone gets too far along in the home buying process, when someone contacts a real estate agent to help them find a home one of the first questions the agent will ask is whether or not they’ve spoken with a lender and if not they need to do so soon before the agent does too much research. The agent will also ask to see a pre-approval letter from the lender. Once the letter is obtained, the agent knows the buyers are motivated and there will be no problems during the loan process.
Further, when making an offer on a property, the sellers and the seller’s agent knows the buyers are motivated and have already submitted their loan application to a lender. If there are multiple offers on a property the buyers with the pre-approval letter will get the nod over someone without a pre-approval. Remember, when a seller accepts an offer its status is switched from “For Sale” to “Pending” which means a contract has been accepted and a closing date has been scheduled. If there is a problem with the loan application during this period and the deal falls through, the sellers must put the home back on the market once again. For peace of mind for all parties, the pre-approval letter is the answer.
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