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Mortgage Pre-Approval   arrow

One of the most important steps in buying a home is obtaining financing. Before you begin looking at homes, you’ll need to get a pre-qualification or pre-approval letter from the bank.

What is a pre-qualification or pre-approval letter???

Pre-qualification is a bank’s estimate of how much house you can afford without the bank verifying any information that you tell them such as your income, employment history, etc. The letter states that the loan is subject to their approval process.

Pre-approval, on the other hand, is a more formal commitment from the bank. In this case, you’ve already submitted proof of your financial situation including W-2s, bank statements, pay stubs, etc. and the bank gives you a letter stating that you are pre-approved for a loan up to blank amount (the blank, of course, is filled in with a real number).

So, which one do you think is better to have? Pre-approval, of course. You’ll have to submit those documents and have your credit checked eventually anyways, so you might as well get it over with. By getting pre-approved, versus pre-qualified, you are leaving less room for a problem to turn up in your application later on.

Why do you need a pre-approval letter from the bank?

Number One: The letter tells you how much money the bank is willing to loan to you for a home. Without it, you have no idea what price range you should be looking in, meaning you could be wasting your time looking at homes that you can’t afford.

And Number Two: Even if you’re confident that you will qualify for a loan, the seller has no reason to believe you. A letter from the bank is PROOF that you can afford to purchase a home within a given price range.

These days, a seller most likely won’t even look at your offer if it is not accompanied by a pre-approval letter from the bank. So, be prepared and get that letter!

If you’re not sure which bank to go to, you might try calling a few different banks, or you can ask your real estate agent for suggestions. Part of our job is knowing which banks offer what types of loans (and which loan officers are reputable).