Why Getting a Pre-Approval Letter is Needed to Buy a House
Any buyer that is serious about purchasing a home is likely going to need a pre-approval letter from their lender. There are instances where a letter is not needed, but it is much easier to make an offer with the peace of mind that the mortgage is secure.
In fact, many real estate agents will not show houses to a buyer without a pre-approval letter. They prefer to not waste their time and the time of a seller if a buyer is unable to get a loan.
Pre-Approval Letter
There are two terms that are often seen as the same concept: a pre-approval letter and getting pre-qualified. These two terms are not the same and a buyer is going to want to see a pre-approval letter and will not care that someone has been pre-qualified for a loan. A pre-qualification states that there was a verbal communication in which a lender has agreed the buyer could qualify for a loan.
This does not mean that once the process starts the buyer will get approved. A pre-approval letter takes longer than getting pre-qualified. It is a process where the lender will review documents and verify income, then once they approve these components, they will state that they will provide a mortgage.
Who Does Not Need a Pre-Approval Letter
There are very few instances where a buyer can avoid getting a pre-approval letter. If a buyer is paying for the house in cash they will not need to be pre-approved. The buyer will already know that they are able to fund the purchase of the house and will be confident in their offer.
In a less likely scenario, there are some people that are ideal borrowers. Someone that has always had a stable income and credit history that has always been great can approach a seller with confidence. If there are no reasons a loan could have any hang-ups they may be able to start without that pre-approval letter.
Who Needs a Pre-Approval Letter
For the same reasons an ideal borrower can confidently make an offer, someone will less than ideal credit history needs a pre-approval letter. If someone has poor credit it will be harder to get a loan. Anyone that is self-employed may have to work harder to find a lender that is willing to work with them, as well.
An area that has a housing market where people are buying and selling quickly will force the buyers to have pre-approval letters. Sellers will not believe that a buyer will be able to make a true offer without this letter and in a fast-paced market that is vital. Buyers with that letter will win out every time.
A reason to get pre-approved is to know how much can be borrowed. Many people start looking at houses without knowing what price range to look in. More often than not people overestimate their borrowing power. Leading to disappointment when they learn their dream house is way out of their price range.
Getting Pre-Approved
Shopping around to get approved is best. Some lenders work for the borrower more than others. There are lenders that will approve an application quickly while others will take more time in their approval but offer lower rates or benefits. With a timeline in mind, it is best to interview different lenders to see which will be the best fit for the home buyer’s needs.
The process of buying a house starts before seeing any properties. A home buyer that is serious about making a purchase and who would like to have an edge over the competition should get a pre-approval letter from their lender. With this letter, they can work with a real estate agent and make offers on houses that are likely to be accepted.