Your friends and family may know you to be reliable, dependable and someone who pays bills on time, but all others in a real estate transaction will require you to prove it. That’s where preapproval comes in. A preapproval letter is more reliable than a pre-qualification letter. In the preapproval process, a lender will examine your finances and will make a preliminary statement on the size of the loan for which you’ll qualify.
Preapproval is an involved process. The lender will take all pertinent information regarding your finances and perform an extensive check on your current financial status. This procedure will ultimately give you the exact loan amount that you will be eligible for (depending on what type of loan you decide to select.) Being preapproved lets the seller know that you have gone through an extensive financial evaluation and there should be no unexpected obstacles to buying the home. It makes your offer much more powerful.
Preapproval gives you a very good indication of:
- How much down payment you’ll need
- Your closing costs
- Your monthly payment (including PITI: principal, interest, taxes and insurance)
- The type of loan for which you qualify and which best suits your needs; and,
- Special programs for which you may be qualified, including those for veterans, first-time buyers, teachers, etc.
To become preapproved you will need to provide a lender with the following:
- Your employment and income history (including recent pay stubs)
- Your monthly debts
- The amount and source of cash available for the down payment and closing costs
Preapproval letters are not binding on the lender, they are subject to an appraisal of the home you want to purchase and are time sensitive. If your financial situation changes, interest rates rise or a pre-determined date passes, the lender will review your situation and recalculate your maximum mortgage amount accordingly. You can research lenders yourself and ask them to preapprove you. |