With the current unique housing market and the tightening of credit requirements by lenders, home buyers are more apt to have a contract accepted if they provide evidence that they will be approved for a mortgage.
Pre-qualification and pre-approval letters obtained from a lender help borrowers show this evidence and can help secure a purchase. These letters are even more important in rebounding markets where sellers are fielding multiple offers.
A pre-qualification letter helps home buyers when shopping for a home by letting them know how much they can borrow. Pre-qualification is available for all mortgage loan programs and is simply based on information provided verbally by the homebuyer. The pre-qualification process can be advantageous to determine how much of a loan he or she would qualify to receive.
A pre-approval letter, on the other hand, holds more weight because it means the lender has made a preliminary review of the qualifying criteria and has approved the home buyer for a mortgage based on the provided information. To be pre-approved, potential buyers must complete an application and have their credit report reviewed by the lender. In most cases, an applicant will receive their pre-approval letter the same day they apply. A rate cannot be locked, however, until placing a contract on a property. The pre-approval letter can be a strategic tool in negotiating a purchase contract.
Home buyers should apply for pre-qualification or pre-approval at least a few weeks before beginning their search for a new home, and the letters are generally good for 30 to 90 days.