What is a pre-approval (pre-qualification) letter?
When you find a home you like and place an offer, you will be asked for a pre-approval letter. Today we will look at that pre-approval letter.
Pre-approval literally means pre-approved. In other words, as you can see through the image below, it is a document that proves that “render has investigated and can receive a mortgage up to $XXXX under any terms”.
So, what are the factors that influence the issuance of this pre-approval? From the lenderer's point of view, we see whether the buyer can repay the pre-approved amount through the pre-approval letter without any problems. So, of course, they check your income, your debt, your assets, your credit score, and your current employment status. After examining this individual's financial situation, they decide and issue to the extent that they can lend money to the buyer.
Many realtors will ask for a pre-approval when they start showing their homes to buyers. Here's why:
Naturally, the seller prefers offers with a pre-approval letter. No matter how much a buyer gives you as an offer, if you can't prove your ability to get money, the offer is no different from bluffing. Of course, the seller will want to avoid the cases where they believe in the words of the buyer and proceed with the sale, only to find that the mortgage does not come out after a month or two and only wastes time. Thus, a pre-approval letter is a tool for reassuring sellers by showing that the offer you are sending is genuine and not bluff.
It allows buyers to more accurately budget. Early in my realtor career, after seeing over 20 homes with a client, I found out that the client couldn't get a loan. The buyer was very disappointed, and it was an experience that made me regret the effort and time I put in. In fact, this kind of embarrassing situation happens often. So it's important to know your exact budget before you go looking for a home. The first step in figuring out the exact budget is to figure out how much mortgage you can get through pre-approval.
There are a lot of people who are worried about “would I be able to get a mortgage of this size?” while looking for a house. The best way to get rid of this anxiety is to take a pre-approval. You can be rest assured that you can get a mortgage of any amount.
Of course, pre-approval does not mean that the mortgage will pay off 100%. Occasionally, there are cases where the loan does not come out even when the pre-approval comes out. However, those cases are really rare. Therefore, rather than proceeding with only a 100% guess, it is a much smarter and more efficient way to purchase a house by receiving a pre-approval in advance and then proceeding with the house purchase.
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