A loan prequalification, or “prequal,” means nothing more than that you have had a discussion with a loan officer; you probably haven’t even completed the 1003. A prequalification letter is a letter from your loan officer stating that you and she have had a conversation and you’ve told her what you do for a living, how much money you make, and what kind of bills you have outstanding.
Based upon this conversation, a loan officer will type up a prequal letter, essentially stating that based on what you’ve told her and using standard loan qualification guidelines, you are hereby “prequalified” to buy a house for a particular sales price and loan amount.
In the past, a potential home buyer would carry a prequalification letter around with him as he began shopping for a home. If a Realtor wanted to show homes to a home buyer, she would ask the buyer if he had been prequalified. The consumer would answer yes, and the Realtor would then show him homes.
When a consumer found a home that he wanted to buy, the seller or the seller’s Realtor would ask to see his prequalification letter. This would tell the seller that the potential buyer had spoken with a loan officer.
Few Realtors accept prequalification letters anymore when you make an offer. They prefer a preapproval letter to a prequalification letter.
A preapproval letter takes the prequalification one step further. It isn’t issued until the information provided to the loan officer has been verified and the credit report has been reviewed. Verification takes place using third-party sources. Income is verified by examining a recent paycheck stub, last year’s W-2 form, or both.
Having enough money to cover both the down payment and associated closing costs is verified by examining recent bank and investment statements showing that the buyer has enough money to close a particular deal based upon an assumed sales price.
A preapproval letter is issued only after a review of the borrower’s credit report. Most Realtors will accept a preapproval letter, but some want something even more solid: an approval letter with conditions.
It’s the approval that sellers want to see.
It’s the Approval That Sellers Want to See.
You’ll notice right away there is no pre in front of the word approval here. This means that not only has the 1003 been completed and verified, the credit report reviewed, and the existence of sufficient funds to close verified, but the loan has been reviewed either by an underwriter or by some type of automated underwriting system (AUS), and an approval has been issued, “subject to” certain conditions being met.
Common conditions would be things like providing enough insurance coverage to insure the home and making certain that none of the documents in the file (such as bank statements and paycheck stubs) are more than 90 days old.
This is the approval letter that your Realtor wants to see—and so do the sellers of the property that you want to buy.
The next stage is “clear to close.” At this point, all conditions have been signed off on, everything is in order, the property has been evaluated, and your loan papers have been printed and are awaiting your signature. You won’t ever have to worry about providing a clear to close letter to anyone, but your loan officer will tell you and your Realtor when you’re at that stage.
And remember the old adage, “It ain’t over ’til it’s over.” The last bit of approval comes when money changes hands. This stage is called funding. Your loan has funded when the home is officially yours: The keys are in your hand, and money has been electronically wired to the seller’s bank account.
If you are having questions about mortgage pre-approval process for your first, second or investment home purchase in Harford County, MD and surrounding areas reach out to our experienced real estate team at We Sell Harford Homes at 443-616-5486 and we can help to connect you to the trusted lenders.
Some of the areas we serve (if you don’t see one listed that you are interested in looking – just ask!)