How To Get A Pre Approval Letter

The home-buying process can be equal parts exhilarating and terrifying. So, how can would-be home buyers take some of the stress out of the process? If you're staring down a hefty mortgage, applying for loan pre approval can be a great first step. In fact, in some of the toughest real estate markets, a loan pre approval can be a great entry point. And, surprisingly, loan pre approvals are not that difficult to qualify for, so long as a person has a solid financial standing. So, what are the best benefits of loan pre approval? We're taking a closer look here.

There are several steps in the mortgage loan process. After buyers find a mortgage lender (or two or three) that they would like to work with, the buyer will first have the opportunity to become prequalified for a loan. At this stage, the buyer answers questions for the lender about their income, assets, and debts. Once the lender receives all the information they need about the buyer, they run a soft credit check — that is, a credit check that won't impact your credit score.

If the lender likes the information the buyer has provided, the lender will give the buyer a mortgage loan pre-qualification. This is a rough estimate of the kind of loans and amount of money the buyer might be able to get from the lender. While loan pre-qualification is a good sign, many sellers and real estate agents require buyers to take the process one step further.

That is, loan pre-qualifications are not guarantees that a buyer will be able to get a loan. To make the pre-qualification, the lender has relied largely on the buyer's word. To actually give a loan for hundreds of thousands of dollars, the lender will want to verify everything the buyer says. If the buyer wants to move forward, the buyer will need to complete a loan application to receive a mortgage pre-approval.

The loan application involves a hard credit check — and the lender will need check stubs, bank statements, tax returns, and other financial documents to prove how much money you make, how much money you have, and how good you are at paying your bills. After all of that information is gathered and analyzed, the lender will provide the buyer with a mortgage loan pre-approval.

In essence, a pre-approval is a time-sensitive letter that states how much a lender is willing to loan a buyer. In many cases, these letters expire if a loan is not acted upon in three months, but the exact timing depends on the company.

Pre Approvals Can Be a Requirement to See Homes

HGTV has made shopping for a new home a bit of a fantasy. Going to see a home is not as easy as having a quick chat with a real estate agent and then going on a tour of three fantastic possibilities. Many real estate agents instruct potential buyers to get a mortgage loan pre-approval before they start shopping. Some won't even work with buyers who do not have a pre-approval.

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It's also becoming quite common for sellers to be stringent about pre-approvals. In some listing instructions — the rules of engagement a real estate agent has to read before booking a home for showing — sellers specify that buyers must have a pre-approval. As such, a seller can reject or refuse to even consider an offer if a buyer does not have a pre-approval.

In many states, the necessity of the buyer having either a pre-approval or a letter from the bank indicating that the buyer can pay in cash is even written into the suggested sales contracts used for real estate transactions.

Pre Approvals Protect the Buyer's Emotions

Buying a home is an emotional process. Whether you're moving across a city or across the country, it involves packing up your entire life and taking it to another place. The purchase of a new home requires finding a new place of retreat where you can feel safe and sound. If a loan is involved in the process — and it is for most people — the purchase of a new home also requires a hefty financial commitment, which can be rather stressful.

Amid the emotional roller coaster that is the home-buying process, the last thing a buyer needs is to be disappointed by realizing that homes they've got their hearts set on are woefully out of their price range. Mortgages are not like groceries, cars, and other commodities that people deal with every day.

Qualifying for a mortgage is not as simple as having a "good job." In fact, two people who make the same amount of money could qualify for drastically different mortgage amounts if their overall financial pictures differ. So, spare yourself the heartache of getting attached to something that you won't be pre-approved for in the long run. In the end, this will save you time, too.

Pre Approvals Protect the Buyer's Wallets

Contract law and real estate standards differ from state to state, but in most cases, a real estate sales contract says that the buyer truly intends to purchase the home. There are fees, such as due diligence and earnest money, that a buyer pays to the seller to show their sincerity in buying the home. If a buyer backs out of the contract because a loan does not go through, the buyer may lose out on those fees. The fees are negotiable, but it is not unheard of for them to be in the range of the tens of thousands of dollars.

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When you get your heart set on purchasing a home, obtaining a loan pre-approval may seem like a pesky roadblock. There are so many steps in the process — and there are so many documents to produce — but it is so very worth it. In all likelihood, your home will be your biggest investment, and you need to know how much you can afford to put into it. So, don't put the cart before the horse: take the time to obtain a pre-approval first.