Pre-Approval Mortgage Letter Can Expedite Home Purchase

Mortgage lenders encourage home buyers to get a pre-approval mortgage letter before shopping for a home because it provides several advantages. Here are a few things to know:

Pre-approval versus Pre-qualification

Pre-approval for mortgage loans is not the same as pre-qualification for a mortgage: Home buyers may encounter both terms in lender advertising and during discussions with mortgage loan officers. The Consumer Financial Protection Bureau (CFPB) describes a mortgage pre-approval as a commitment by a lender to make a home loan of a specified amount until a date when the commitment expires. Mortgage lenders can pre-approve a mortgage based on applicants' submission of documentation that proves their creditworthiness. Mortgage lenders typically issue a letter that indicates how much the named mortgage applicants are qualified to borrow until a specified expiration date.

Pre-qualification is a similar process, but it is based on unverified information provided by mortgage applicants to a lender. Mortgage pre-qualification can help home shoppers estimate the maximum amounts they can afford to pay for a home and borrow with a mortgage, but pre-qualification does not promise mortgage approval.

Pre-approval Almost Good as Cash

Pre-approval mortgage letters let sellers know that buyers are approved for financing: While most buyers can't pay for a home with cash, an offer that includes a mortgage pre-approval letter shows that a buyer has the financial means to purchase a home. While mortgage pre-approval doesn't cover every potential complication, it tells sellers that the offer is likely to conclude in a completed sale. The expiration date on a mortgage pre-approval letter can help encourage acceptance of a purchase offer as it informs sellers and real estate pros that a purchase must close before the mortgage pre-approval letter expires.

Mortgage pre-approval letters can ease seller concerns over mortgage approval: the National Association of REALTORS® advises home buyers that mortgage lending requirements are more strict, and home sellers are likely to require a pre-approval letter with a purchase offer. Mortgage pre-approval shows home sellers that buyers meet the requirements for financing and that a purchase contract won't fall through due to buyers' mortgage credit problems.

What's Covered in a Mortgage Pre-approval Letter?

Mortgage pre-approval letters specify the maximum amount a buyer can borrow, but home buyers are not obligated to borrow the maximum amount shown on a pre-approved mortgage letter. Buyers who don't wish sellers to know what their maximum is can ask their lenders to provide several letters with different amounts or to customer a letter to the specific offer being made.

Pre-approval for mortgage letters don't cover everything: Mortgage approval is based on applicants' financial and credit standing, but the home being purchased must also meet mortgage lender standards as well as occupancy and building code requirements. Homes serve as collateral for mortgages, and lenders must verify that there are no lingering repair conditions, zoning problems or title issues that can negatively impact their value.

An experienced team -- loan officer, real estate agent and escrow officer -- can help see inexperienced homebuyers through the process and minimize unexpected problems during escrow.

Get Home Mortgage Loan offers customized for you today.