How to get a loan approval letter
When you’re shopping for a new home, a standard thing you need to make a successful offer is a loan approval letter. Here, we’ll cover how to get one, what the different types are and how to make yours stand out.
What is a loan approval letter?
A loan approval letter is a sometimes referred to as a pre-approval or a pre-qualification letter. It basically says that a loan officer from a specific bank or brokerage thinks that you have a good chance of getting a mortgage for a certain amount. That means the seller of the home you are interested in can feel that you are 1) a serious buyer and 2) able to get a mortgage for the needed amount when you make an offer.
What is the difference between a pre-approval or a pre-qualification letter?
A pre-approval letter means that you have submitted an actual mortgage application and all the necessary financial information and a lender has approved you for a certain mortgage amount. With pre-approval you will have had your credit checked and possibly paid a fee for the application.
A pre-qualification letter reflects more of an estimate of how much you can borrow, based on self-reported data, such as credit score. In a pre-qualification, you will not have yet submitted a full mortgage application and wouldn’t have had your credit score checked.
Which type of loan approval letter is best to get?
Depending on your market, a seller may require one type of letter versus the other in order to consider an offer. If the market you are in is very competitive, then sometimes a pre-approval type of letter is needed.
What should be in the loan approval letter?
Ideally, your loan approval letter will come from a recognizable bank or lender. This is because the seller might interpret a no-name or obscure lender as a sign that you can’t get approved from a known lender.
You should have the lender write the letter that clearly states that you are pre-approved or pre-qualified (whichever process you needed to use) for the exact amount you would need to buy their house. You don’t want to state a higher number in case it affects your ability to negotiate down. If you put a large mortgage number above what you need to buy their home, they may think they can get you to come up in your offer.