Many real estate agents will recommend that their home buying clients obtain a pre-approved mortgage loan letter prior to beginning the home search process, and there are good reasons for this.
With a pre-approval for a mortgage loan, a buyer’s offer to purchase a property is more legitimate and attractive to a seller.
The letter also may state the maximum sales price and loan amount that the buyer is pre-approved for, and this can help the real estate agent and buyer to narrow down the property search.
These are only a few of the many reasons why home buyers may want to get a pre-approved mortgage loan letter.
Getting a mortgage letter is easier to do than it sounds, and it may be obtained by following a few important steps.
Shop for a Lender
A mortgage pre-approval essentially will tell a seller that the buyer is qualified to purchase a property, and this pre-qualification may be based on factors like credit scores, income and expenses.
Many residential lenders have similar requirements for pre-approval, but there may be some variations.
With this in mind, it is important to shop for a lender before applying for a loan. Keep in mind that the pre-approval is valid for a limited amount of time, and because of this, it is important to get pre-approved close to the time when the buyer is ready to get serious about finding a home to purchase.
Lenders offer different types of loan programs, so the pre-approval letter should ideally be from a lender with loan programs that fit the buyer’s needs.
Fill Out a Loan Application
After a reputable lender and a great loan program have been found, the buyer typically will need to fill out a loan application.
This loan application often can be completed online, but buyers may still need to sign it before it can be finalized.
The buyer should remember that the information provided on the loan application will be verified later in the loan process, and this includes income, assets, length of time with the employer and other information.
The validity of the pre-approval is based on how accurate the information provided in the loan application is.
Complete the Pre-Approval Process
In addition to completing a loan application, the buyer may also be required to fill out a few authorization forms.
A common form is an authorization form to pull credit. A pre-approval typically will be based on both the information provided in the loan application and the credit scores and creditworthiness of the borrower.
In some cases, a lender may also ask for additional forms to be completed, or the lender may ask for additional documentation up-front, such as pay stubs.
Any loan documents not provided by the buyer up-front will need to be provided prior to closing.
Therefore, the buyer should not consider a pre-approval letter as the end result of the loan application process.
Most lenders will require several years of tax returns, bank statements and other documentation to be provided after the pre-approval process has been completed.
Review the Letter Carefully
The lender will review the loan application, credit report and other documentation that the buyer provides.
A debt-to-income ratio may be calculated, and the buyer’s assets will be analyzed. In addition, the credit scores will be reviewed.
Based on this analysis, the lender may determine that the buyer qualifies for a specific loan amount and interest rate.
The maximum sales price may also be determined based on this information. All of this information may be included in a pre-approval mortgage loan letter.
However, if any of the information that was provided in the loan application cannot be verified or is not accurately represented in the loan application, the terms of the loan approval may be subject to change.
The buyer should carefully review the loan letter to ensure that it meets his or her needs and to learn more about conditions for final loan approval.
Continue to Shop Around for Better Terms
Ideally, the buyer will select a great lender with a beneficial loan program up-front before applying for the loan, but the buyer should understand that it is not too late to find a better loan program.
The letter from the first lender can be provided to a seller if the buyer makes an offer. However, it is not too late to continue to shop around and potentially find an even better loan program.
Buyers should, however, avoid having too many inquiries on their credit report as this can make credit scores drop.
A mortgage loan letter is a great resource for buyers, and it can make an offer to a seller more legitimate. Getting a letter may only take a few hours in some cases, but buyers should take time to shop around to find a great loan program before applying for a loan.
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