First Time Homebuyer Information & Education

What should a preapproval letter contain?

What should a preapproval letter contain? - There are a few things that every preapproval letter should contain. The main thing that every preapproval letter should contain is the LOAN AMOUNT. This will let you know how big of a home you should be shopping for. Remember that this number is just a guideline for yourself, you need to feel comfortable with the payments of this loan in the long run. Do not allow your realtor to talk you into purchasing a home that is just a little bit more than what you feel comfortable with, unless the realtor plans on sharing the payments with you.

There is a difference between a preapproval and a prequalification. A prequalification is normally done over the phone or computer within a matter of minutes without verification of any information. However, a preapproval is a more in depth type of procedure that requires the verification of down payment money, earnest money, employment and income information, source and seasoning of assets, and many other items. A true preapproval will basically go through underwriting and provide an approval for you based on a satisfactory appraisal and title work. Therefore, it is always better to be preapproved instead of prequalified when you are looking for a new home to buy. You will be taken more seriously with a preapproval letter before you begin looking at homes and your bid is more likely to be accepted over someone without a preapproval letter. Make sure your loan officer or your mortgage broker asks you for your income documentation and has you complete a full application before issuing you a preapproval letter. If he/she does not, you are more likely to experience delays and/or problems throughout your loan process than someone who has been asked to provide all of their information and documentation upfront.

You should obtain a pre-approval letter when you first start looking for a home. This will help you determine what price is affordable. The pre-approval letter also lets sellers know that you are serious about the process.

Here is a sample prequal letter
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To:

Borrowers:
Escrow #:
Property:
Loan Type:
Date:

The above-mentioned buyer(s) has applied for a home loan and has been approved through First Security Financial Services, Inc. This approval is based on a completed Uniform Residential Loan Application and verification of income and credit. This preapproval is also subject to "borrower's" income, job and credit remaining the same. Any changes in the borrower's file will need to be reviewed and re-approved. This letter is good for 60 days from the date listed above.

Conditions prior to loan documents are:
1. Satisfactory appraisal report to support sales price
2. Estimate HUD 1 reflecting all closing cost
3. Lock-in interest rate and finalize loan amount
4. Escrow instructions and final vesting
5. Fully executed purchase and counter offer, if any
6. Preliminary title report

Funding conditions also apply, but are technical in nature such as termite clearance, proof of insurance, executed loan documents, etc…
Credit documentation may be provided as part of our approval process. Please inform us of any adverse changes in the terms of the purchase transaction.

Please do not hesitate to contact us at our office or by cellular/voicemail (440) 614-0130 with any questions. We look forward to servicing your future real estate financing needs and the needs of your clients.

Thank you,

David J Zwierecki

26777 Lorain Road, North Olmsted, OH 44070
Telephone (440) 614-0130

Your preapproval letter will naturally need to be dated and possibly state when the preapproval will expire. If the letter is more than thirty days old the seller or real estate agent may ask that the letter be updated.

Your letter will typically state that the home must appraise for at least the selling price and that clear title can transfer to the new owners.

If you are preparing to purchase a property in Texas there is a specific pre-qualification and pre-approval letter that is mandated by the state. Be sure that your lender prepares the correct letter.

The pre approval letter is just that a pre approval and not a guarantee to lend. Once the loan file is in underwriting at the lender your ability to borrow and the amount you may borrow may change. To avoid this type of situation always provide your mortgage broker with as much accurate information as possible.

The Pre-Approval Letter should contain the loan program you have been approved for. There should also be conditions unique to the loan program you need to satisfy prior to final loan approval. Some of the more common conditions on a Pre-Approval are the requirements for property appraisal, copy of down payment and/or earnest money deposit check, rental history verification, most recent bank statements, etc.

Most Real Estate Agents or Buyer's Agents will not work with you until you have a Pre-Approval Letter.

A Pre-Approval may also include interest rate, and payment information for the loan amount you are approved for. In most cases your interest rate will be a floating rate and subject to change with out notice.

Your Pre-Approval letter should also contain the contact information for your mortgage broker. This is to ensure that it is a legitimate Pre-Approval, and also to allow your real estate agent to verify the same.

When you get your pre-approval letter also ask your mortgage broker for a copy of a Good Faith Estimate (GFE) so you can get an idea of what to expect for closing costs. There are some fees that will depend on what the purchase price actually is for the house you eventually buy. However this will give you and the real estate agent at least an estimate of that broker's fees.

If the loan program you are approved for allows for a seller assist, this should be mentioned in the pre-approval letter. Various programs allow different seller assist amounts. Your real estate agent should be aware of the seller assist amount you are allowed. This way, they know to negotiate this into the sales agreement.

Your pre-approval letter should give a basic outline of the terms of your financing. Every nook and cranny of how you will qualify for the loan is not needed.

Information listed above is to be used for educational purposes only and is not guaranteed

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