In the past, home buyers may have been able to obtain a home loan without going through the preapproval process. However, in today’s market, banks and sellers are a bit more wary. In order to build confidence, trust and smooth out the home buying process, potential home buyers should look into getting a letter of preapproval.
What is a letter of preapproval?
When you’re preapproved, it means your chosen mortgage lender has verified that you are preapproved for a set mortgage amount (for a fixed amount of time). Your letter of preapproval will typically say you’re approved, the date on which the preapproval expires and any other stipulations such as clear title transfers and/or home appraisal vs. selling price of homes. This letter will also be used when you and your agent submit a Purchase Agreement (offer) on a house, at this time it will need to include the home’s address you are offering on.
What is the benefit of being preapproved?
With a preapproval letter in hand, you’re more appealing to REALTORS as well as sellers. As REALTORS, we know you’ve taken proactive steps in securing your preapproval letter. This may also put you in a better position to negotiate when it comes time to making an offer on the home of your dreams. And, you’ll also know just how much you can afford with regard to your new home purchase.
From a sellers standpoint, your letter of preapproval demonstrates your capability of buying their home. They are looking to close the deal and working with a preapproved buyer can lessen the burden there.
What does the preapproval process look like?
It may sounds more daunting than it really is–in actuality, the preapproval process can be done in as little as 24 hours. There are a few items you’ll want to have ready, before starting your preapproval process. These items include:
- Income statements (e.g. W2s, pay stubs, tax returns if self-employed, etc.)
- Bank statements (typically 3 or 4-months worth will suffice)
- If you own a current home, your loan documents
- Divorce decree (if applicable)
- Other proof of investment income
The preapproval process also requires a credit report which will be ran for you. Check with your lender to see if this requires a fee; many do them for free or charge a minimal amount. You are also under no obligation to finance your mortgage through the lender who handles your preapproval process.
How long does it last?
Preapproval letters do have expiration dates, so be sure to check with your lender so you’re aware of when they expire. Typical preapprovals last for 90 days. Likewise, if you incur a significant credit or life change (e.g. change in job, additional/less income, etc.) it is to your advantage to let your lender know so he or she can adjust your preapproval documentation.