Interest rates are at a record low. Discover why an approval letter is more important now than ever. The difference between pre-qualified, pre-approval, and approved for a home loan can appear trivial to people outside of the Real Estate industry. For Realtors and loan officers, the difference between each level of approval is of critical importance!
If it’s your first time to buy a house or your tenth time, the market has changed and that means your strategy should too. First thing, let's talk about what it takes to get each level of approval. A pre-qualified buyer has only had a conversation with a loan officer and that loan officer believes that they will qualify. A pre-approved buyer has had credit pulled and provided documents to a loan officer who has reviewed both and ran the file through an automated system to gain pre-approval status.
An approved buyer has made an application, submitted documentation, and had the file reviewed by an underwriter who has reviewed the file, its documentation, and issued a conditional approval letter. An approval means that you are able to afford a certain loan verified by an underwriter who has evaluated your financial records. The letter will state your approval loan amount, not being limited to a certain value range based on one home’s asking price, rather it demonstrates the amount you actually are approved to accept.
As you can see, each level gets more thorough in its review of the buyer. A borrower that has been approved is further along than one that’s just been pre-qualified or pre-approved. This is important to the agents and sellers. Any ‘Approved’ buyer is more likely to reach the closing table and can close quicker than the other potential buyers that just have a ‘pre-qualification’ or ‘pre-approval’ letter. An approval letter, also known as a Commitment Letter, gives you negotiation power, helps you know exactly what you can afford, and closes the deal faster.
All of these attributes make a buyer armed with an approval letter very attractive to your realtor and sellers. While walking into a home for sale equipped with a mortgage approval letter does not guarantee an offer, it does make the homeowners and the real estate agents reassured that you are serious about the home buying process. But keep in mind, the approval does not guarantee you a loan. You still have to complete the application, go through the underwriting process, and wait for final approval.
In today’s market, it always helps to have an advantage when walking through the door.
Why not get an approval letter instead?
Once you have your Approval letter in-hand, be sure to avoid the following things that can affect your credit:
Credit checks – this is common, and often happens when someone orders a home security system or other items.
- Credit checks – this is common, and often happens when someone orders a home security system or other items.
- Buying items on credit cards that you currently use – avoid large purchases that can affect your available credit.
- Applying for new credit – sometimes this occurs when people want to purchase new furniture, for example. Often people apply for credit when they are purchasing a new car, especially when interest rates are low - this can affect your current credit status.
Prosperity Home Mortgage is the superior company to ensure your loan experience is timely, professional and secure.
The Prosperity Home Buyers Advantage:
It allows you to walk through the door with a Commitment Letter. You may be thinking to yourself, “What are the benefits of a Commitment Letter?”
Great question. The service is complimentary, the letter will set you apart from other buyers, with much of the financial process done up front, this may help with any last-minute issues. Lastly, it may allow a more flexible closing date to help ensure an on-time closing, which means you can move into your new home with peace of mind.
Be sure to avoid any big purchases or hard hits to your credit score. The purchase could affect your approval process and prevent on time closings. When your credit gets a hard hit you may have to restart the loan approval process all due to a lower than expected credit score. Remember to think through your financial plans before making any financial decisions. Work with your agent and loan officer, they are your beacons of light during the home buying process.
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RealtySouth is a full-service brokerage firm of HomeServices of America Inc., and a Berkshire Hathaway affiliate. Headquartered in Birmingham, Alabama, RealtySouth serves the entire state and has been a member of the community since 1955. To better serve our community and provide a smooth and successful real estate transaction, our company offers a comprehensive package of real estate services. Our services include relocation through our Relocation Services Department, mortgages through Prosperity Home Mortgage, title search through TitleSouth, insurance needs via InsuranceSouth, Title Closing Centers, warranty services and of course connecting you with the real estate agent to introduce you to the home of your dreams. View homes for sale and contact us today to get started!
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