subject: What Not To Do When Using Home Loan Pre-approval Letter [print this page] It's considered good practice to accompany an offer on a property with a loan preapproval letter. All over the country, real estate agents will insist that you attach a loan preapproval letter together with the offer you're making.
What is a loan preapproval letter?
In practical terms, a loan preapproval letter does not guarantee that you will be approved for a loan. It's not a contract with the lender and has no bearing in terms of whether a lender will lend you money or not. Even if you have a preapproval letter, the amount that you will be approved for may still change. Even the approval status of your loan may still change. Preapproval letters are just proof that you can show the seller that you already have applied for a loan, that your credit score has been investigated, and that you are serious about making the purchase. It builds more confidence in you and your intention to buy the property. Say for example you're looking into Spotsylvania Homes for Sale and made an offer on a price of Spotsylvania real estate. It helps your chances at negotiations if you have preapproval from the lender. However, here are three things you should look out for when using preapproval letters:
1. Submitting a preapproval letter from a lender that's outside the area of the seller. - There are so many fly-by-night lending companies that make promises they can't deliver on, effectively wasting the time of both the seller and the buyer. If you want the seller to look favorably on your preapproval letter, it's best to get one from a reputable lender within the same area. The seller will feel more at ease that you're really going to get money from a reputable lender.
2. Submitting a prequalification letter rather than a preapproval letter. - A prequalification letter is not a preapproval letter. Anybody can get prequalified for a loan easily over the internet or on the phone. With prequalification, all you have to do is to answer basic questions like how much you pay in bills and debts every month and how much you make. It's not very comprehensive and would mean a lot less to sellers than preapproval does. With preapproval, your files have been submitted to and approved by the lender. It means that they have already reviewed your credit, verified information on your file, and more. A preapproval letter says that you are qualified to purchase the home, and that the approval is subject to a few things such as home appraisal.
3. Submitting a loan approval letter with an amount indicating that you've been preapproved for more than the price you offered. This is a big no-no. It's saying that you can afford more than you are willing to pay, and that would make negotiations pretty hard.
