Most of us have spent a great deal of time imagining our dream home; the yard full of roses encased by a white picket fence, the elegant staircase climbing around and around, the large kitchen with marble counter tops, the master bath with it’s Jacuzzi tub surrounded by candles, and the waterfall pouring gracefully into the marvelous clear blue pool.
After a couple hundred hours searching far and wide for this perfect treasure, you find it! It’s everything you hoped and dreamed of for so long. After scrounging up the courage to make an offer you head to the bank to obtain your loan.
After the bank processes your application, they call. Your loan application has been denied.
Your dream just turned into a *nightmare*! How could this have happened? What could you have done to prevent this from wrecking havoc in your life? If ONLY you had gotten pre-approval from a bank before beginning the search for your dream home.
Getting pre-approval from a bank or other financial institution is imperative before beginning the search for a home. It is important to understand the price range you’re able to afford and specific aspects of your financial situation that may determine your eligibility. When you make an offer on any property a pre-approval or pre-qualification letter also gives you more opportunity to negotiate the price with the seller.
Below are explanations of two different types of “pre” letters that can be obtained from a bank or other financial institution:
Pre-Qualification letters are given as informal and tentative approvals for buyers. The financial institution issuing the letter would have taken information regarding the buyers’ financial situation in order to determine eligibility; however, they would have NOT verified the accuracy of the information. Since the financial institution would not perform a credit check of the buyer at this point they are in a position to withdraw their approval if additional financial (or other significant) factors are later uncovered. There is no charge to obtain Pre-qual letters.
Pre-Approval letters are formal agreements and offer buyers’ a guarantee of loan approval for a specific amount. The financial institution issuing such a letter may or may not charge for this service. They will verify credit history, employment status, assets and liabilities to help determine the amount of credit they are able to offer. If you are a serious buyer, this is the suggested “pre” letter to obtain. Keep in mind that even with a pre-approval letter, your bank may deny the loan on the specific house you wish to purchase. As one example, banks will deny the loan for a specific property if the appraisal is significantly less than the sale price.