Our Tri-Valley market is heating up with multiple offers becoming more commonplace.
If you are a buyer and don’t want to be at a disadvantage in the offer process, you will need more than a mortgage prequalification – you will need an approval letter.
The differences between the common mortgage prequalification and preapproval are significant.
Prequalifying for a mortgage is based solely on what a borrower discloses to the loan officer or broker about his/her earnings, credit score, and total assets, including what is available for a down payment. By contrast, a preapproval requires a borrower to provide documentation of his/her income and assets.
The lender typically pulls the borrower’s credit report and score, while the borrower gathers together almost everything else needed for the actual mortgage underwriting: W-2 wage statements; 1099s; recent pay stubs; bank statements; and statements from Individual Retirement Accounts and 401(k)s; and other assets that could show the borrower has the resources to buy and maintain a home.
For example, Wells Fargo, one of the country’s largest mortgage lenders, does a review by an underwriter which then constitutes an agreement to lend. Other lenders may treat preapprovals as more of an opinion on the person’s ability to borrow, not an agreement to lend.
With so many homes receiving multiple offers, a preapproval is more important in today’s marketplace.
Your preapproval letter should include the amount you are qualified to borrow, as well as the loan officer’s contact information.
Timing also is important. As a buyer you should aim for obtaining a preapproval letter from your lender within 30 to 60 days of the expected purchase date. That is because some letters expire in 90 days.