Prequalification and Preapproval Letter

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Prequalification Letter

A lender’s prequalification process will give you a ballpark estimate of how large a mortgage you will be able to afford. It really doesn’t matter which lender you obtain this from since nearly all of them use the same criteria when determining what size monthly mortgage payments, property tax bill and homeowners insurance you can handle. This will give you a good idea of the maximum mortgage amount you can afford and will help you focus your house search on properties within your price range. Real estate agents, lenders, online financial websites and other sources use the same formula to figure out what priced home you can afford. You will want to figure this out before you start house hunting since your budget can have a significant impact on your new home’s size, age and style. The more amenities and square footage a home has and the newer it is, the more expensive it will be. By obtaining a mortgage prequalification letter prior to embarking on your house hunt, you’ll have a much better idea of exactly what you can afford.

Preapproval Letter

A preapproval letter tells home sellers that you have the ability to qualify for a certain mortgage amount as judged by your lender. The process helps the lender determine the size of mortgage that you qualify for and helps you decide the price ranges to spend your time looking at. The preapproval is very thorough unlike a prequalification, with the lender doing most of the review work required for a full approval with the exception  of the appraisal and title search which can’t be completed until you have  identified a home to buy. Preapproval helps you to know how much you can borrow and confirm  your ability to qualify for a mortgage based on your credit, financial and employment information. It also strengthens your position to make an offer on a house. A seller will be more  willing  to accept an offer if the buyer is preapproved.

To become preapproved you’ll need to work with a mortgage lender who will review your credit history, earnings information, employment history and assets. You can get this done in person or via telephone and/or fax and the internet. Below are the basic items that the lender will want to see:

• A loan application.
• Verification of your employment like pay stubs, W-2s and/or tax returns if you’re self-employed.
• Information concerning any other sources of income such as alimony.
• Source of cash for your down payment and closing costs.
• Authorization to have your credit checked.

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