Pre-Approval Letters

Often the first thing I tell potential clients is to get a pre-approval letter if they don't already have one. This is important for two reasons. First, because the pre-approval letter tells both the buyer and the agent what they can afford rather then making an assumption based on their income and holdings.  Visiting homes that are priced over what you are qualified for is a sure road to disappointment and frustration.

Second, it shows that you are really serious about buying. Buyers who drag their feet on getting a pre-approval tend to be not as committed to the process. Should you find the perfect home, without a pre-approval letter to submit with an offer, chances are that another buyer who is properly prepared will make an offer that will be taken seriously by the seller. A pre-approval letter often makes the difference between an acceptance and disappointment.

A pre-approval letter is different then a pre-qualification. If you call up a lender and say "here is about what I make and I don't have any debt," then the lender will give you a pre-qualification. This is basically worthless. You can't get a loan based on suspect details. However, when the lender asks you for pay stubs, information about properties and stocks and other assets and you provide those documents then a pre-approval letter can be issued. This is worth something. We can walk into an offer for a home and can provide the seller with some proof you can buy the house. Now nothing is set in stone until the lender's underwriter reviews your financial history and portfolio. So don't buy that car or other big purchase item while under contract, it will come back to bite you and you could loose that house.

There are three ways to have a lender write a pre-approval letter (there are more but these will suffice):

1. Written with the full amount you can borrow
This might be used to show how strong you are if the offer price is considerably lower then your purchasing threshold. This can backfire if you are not a strong buyer or the house price is right at your limit.

2. Written with the amount you are offering for the home
With this pre-approval, the seller now knows you are approved at least up to that amount, possibly more. This allows you to keep your cards close to your chest, especially if you are under bidding and want the seller to think you might not be able to go any higher.

3. Written with just the address of the home.
This allows you not to disclose how much you can truly afford, keeping the seller guessing. This can be useful in bidding wars where you want to set the amount you are willing to pay and not be stuck in the assumption that you are a weak buyer who can't go up any more or a strong one who can go much higher. However this doesn't mean you will win only that you can afford the home and "may" be able to go higher.

As your agent, I have built relationships with a variety of lenders, or can work with your lender if you should have a preference. A pre-approval letter is just one more piece of the puzzle when buying or selling a home.

What you'll need to begin the Pre-Approval Process:
• Pay stubs for the most recent 30 days
• Information on any other income you wish to have considered, such as part-time income, rental income, etc.
• W-2's for the past two years
• Name, address and phone number of landlord for the past 24 months
• Previous two months bank statements on accounts (checking, savings, CD's, brokerage, mutual funds, etc.)
• Most recent statements on asset bearing accounts if generated yearly or quarterly (401K, IRA, etc.)
• Copy of social security card and driver's license

If you are self employed, receive commission income, or own investment properties
• Previous two years signed tax returns with all schedules attached
• Previous two years corporate/partnership tax returns
• Year-to-date profit and loss statement (self employed only)
• Current leases on investment properties with rental income

If applying for a VA Loan
• VA Certificate of Eligibility
• Form DD-214
• For in-service veterans, Statement of Service and recent Leave and Earnings Statement
• Name and address of child care provider (if applicable)

If you have been divorced
• Complete signed copy of all divorce decrees
• Proof of receipt of child support payments for the last 12 months

If you have declared bankruptcy in the last 7 years
• Copy of Petition/Decree, Schedule of Creditors, and copy of Discharge

If you are relocating with company benefits
• Copy of company's relocation policy
• Letter from employer stating effective date of transfer and new income
• Copy of entire relocation buyout offer (if applicable)

Additional items if you are refinancing:
• Copy of your survey
• Hud-1 Settlement Statement from purchase of the home
• Most recent mortgage statement on your primary loan (and 2nd lien if applicable)

Valerie Cloutier, Realtorฎ
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Innovative Realty
66 Gilcreast Road
Londonderry, NH 03053
800-746-8448 | 603-434-4101
Copyright ฉ 2005, 2006 Valerie Cloutier ~ All rights reserved.