|What is a Pre-Approval Letter?
You may have heard about one but not been exactly sure what it is or why you would need one.
A Pre-Approval letter is a letter issued by your lender stating you are approved for a certain amount.
This is different from merely being pre-qualified. Pre-qualification is simply that, you have been qualified to apply for a loan before actually being approved. This qualification can mean anything from a simple online form at a bank to sitting with a lender and looking over your financial situation. If it all looks good on paper, then you might be pre-qualified to apply for a loan. If at this point the lender or online bank states there are some issues that need to be resolved, start there and make sure you can at least pre-qualify before actually applying for a loan.
Once you pre-qualify, then you apply. An actual lender will take all the information gathered from your pre-qualification and research it extensively. They will run your credit report, get a full credit and financial history and weigh your debt to income ratio to determine if your financial situation can indeed support a mortgage. At this time, once approved, the lender will give you a figure to which you can borrow up to. This doesn't mean you can find a home "around" that price; that IS the maximum amount they will let you borrow. It's always a good idea to cap your homes at about 10% under that in case you want to cover closing costs in your loan.
At this point, the lender will issue you a pre-approval letter stating that according to your current financial state, you can afford a home up to such amount. You may need to ask for this letter and some lenders will make it blank or fill in an amount. A good tip is when you are offering on a home for less than asking price, to have your lender write up the pre-approval for the exact amount you are offering. This keeps your finances confidential as the sellers only need to know you are approved for the amount you are offering and not any more. If you need to go up in the negotiations, then you can re-write the letter if necessary.
Having a pre-approval letter in hand before looking at homes eases your mind as far as what homes you can afford and it tells sellers you are a serious buyer that has already done their financial homework.
If you have more questions on pre-approval or would like to get in touch with a lender in the Abilene real estate market, please contact us below. We would be happy to get you started.