What is a Pre-Approval Letter and why do you need it?

What is a Pre-Approval Letter and why do you need it?

Pre-Approval Letter is a proof of homebuyer's loan ability provided by a qualified lender.

Potential homebuyers in the United States must provide a Pre-Approval Letter when placing an offer.

 

For homebuyers themselves, it allows them to define the price range and maximum loan amount they can afford, thereby narrowing the home market options, saving them time and energy.

At the same time, the application and approval procedures for pre-approved payment certificates are very simple, and can be processed within one working day in most cases.

For the above reasons, the buying agent (buyer agent, realtor) will suggest to apply for a pre-approved payment certificate before searching the housing market.

 

So, how should the pre-approved payment certificate be handled? What materials are needed? We start with the information that potential home buyers need to provide.

 

According to the U.S. Real Estate Settlement Procedures Act (1974) and related laws, the maximum loan amount a potential home buyer can afford is determined by the buyer's future disposable income and credit history to decide.

 

Therefore, the most important information a mortgage broker/loan officer needs is the income proof and credit history of potential home buyers. The corresponding information includes:

  1. Last month's pay slip
  2. The total amount of the remaining loans currently owned (such as car loans, student loans, etc.)
  3. Current rent
  4. Deposit balance in bank account
  5. Credit score or Social Security Number (SSN)

 

Many people do not know their credit score. In this case, the loan officer can soft pull the credit score based on social security number.

After the data is collected, each payment institution will conduct an audit according to its own standard operating procedures.

In general, the larger the lender, the more complex the review process. Correspondingly, the review time will be longer. Usually it will be 1-3 working days.

 

It is important to note that a pre-approved certificate of payment does not have a statutory obligation to either the issuer of the certificate (the lender) nor the applicant (the potential home buyer).

That is to say, to the lending institution, it does not mean that the lending institution will issue the payment according to the marked amount. It is only a preliminary assessment, and the formal, legally obligated payment will be released after the formal payment application is submitted.

Similarly, for potential home buyers, the pre-approved loan certificate does not indicate that the home buyer must take out the loan from the institution that issued the pre-approved loan certificate.

 

In all, after the home purchase contract (offer) is accepted, the home buyer can still choose any other loan institution.


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