closing Fees

Is a Mortgage Pre-Approval Letter Necessary to Make an Offer on a House?

The short answer is, “No.” However, if you want your offer to be taken seriously and to stand out from any competing bids, this little piece of paperwork can really give you the edge. Here, Realtor.com explains the mortgage pre-approval process and why it’s necessary.

What is mortgage pre-approval?

Basically, a mortgage pre-approval letter is a guarantee from a lender that it’s willing to finance your home purchase up to a certain dollar amount, based on financial info you’ve shared, such as your pay stubs and tax returns. Pre-approval should not be confused with pre-qualification. Often used interchangeably, there is a big difference between pre-qualification and pre-approval. Pre-qualification is provided based on info shared verbally that has not been verified. Pre-approval requires an underwriter to scrutinize your documentation and approve the income and assets for a loan. That means pre-qualification can be done instantly, while it can take up to five days to be pre-approved.

Two times a mortgage pre-approval letter isn’t necessary

The only buyer who definitely doesn’t require a pre-approval letter is one paying with cash. Since this buyer doesn’t need a home loan, sellers know that they can move forward without fear that lack of financing might delay negotiations. Another time when pre-approval might not be necessary is if you’re the ideal home buyer—meaning you have a stable job and a solid credit history. This suggests you’ll have no problem being approved for a loan, so in this case, mortgage pre-qualification may be enough to please the home sellers and their listing agent, at least at the outset.

Three times a mortgage pre-approval letter is a must

There are many times that home buyers should obtain a mortgage pre-approval letter before making an offer. Among them:

• You’re a less-than-ideal home buyer: If your credit worthiness is in any way questionable, getting pre-approval can really help put home sellers at ease. So, it’s advisable to get pre-approved if your credit score is below 640, you’re self-employed, there are gaps in your employment or you have less than two years of employment history.

• It’s a hot market: With much of the country in a sellers’ market, getting pre-approved can help you stand out from all of the other home buyers. When the sellers see an offer with a pre-approval letter, they instantly have more confidence that you are serious, qualified and intend to close.

• You’re not sure how much house you can afford: Some buyers will completely readjust their budget after getting a pre-approval and finding out that they are nowhere near the price range they expected. If you don’t have a pre-approval letter, your offer should include a financing contingency, which binds you to the deal only if you can secure a mortgage. Such contingencies make sellers wary, since closing will hinge on a huge “What if…?” This is why you might want to strengthen your offer by arming yourself with this letter.

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