The mortgage pre-approval process
If you want to buy a Metro Detroit home and have to get a mortgage the seller’s agent will require you to have a pre-approval letter. Just what is a pre-approval letter and why do you need one?
The seller and the seller’s real estate agent want to make sure their home sells. They don’t know you or anything about your credit or income history. They want to make sure your offer is good. So how do they know that you have good credit, a good job, that you can afford the house, that you can even get a mortgage? That is what a pre-approval letter does. It is a letter from a bank or mortgage lender stating the amount of mortgage and home price that you are approved for. The seller wants to know the deal will close.
In order to get a mortgage pre-approval letter a bank or mortgage lender should:
- pull your credit
- examine your credit scores, and credit history
- talk to you to determine if there are any issues that might pop up
- review your paystubs, w-2, and tax returns to determine your income
- look at your asset statements such as 401Ks, bank accounts, mutual funds
- run the figures to determine your debt to income ratios
- find out where the down payment is coming from and how much
- figure out what loan program you are eligible for and what loan program fits you the best
- determine that you will qualify for a loan
- take nothing that you say without looking at documentation that backs up what you say ie. paystubs, W-2’s etc…
One the bank or lender decides that you qualify for a loan the loan officer will type up a letter stating that you are pre-approved for a loan for a certain purchase price or loan amount.
A Mortgage pre-approval letterdoesn’t guarantee that the loan will close. But a good loan officer that really reviews the income and asset documents, knows the loan programs, and qualifies the loan applicant will have a good pre-approval letter. A good closing ratio . That loan officer’s loans will close the majority of the time. Some loan officers don’t do their job and the pre-approval letter isn’t worth the paper it is printed one.
But when a seller’s agent gets one many times they will call the loan officer and ask them questions like:
- have you sat down with the buyer?
- have you seen the buyers w-2’s, pay stubs, assets?
- where is the down payment coming from?
- what is the credit like?
- How much is the down payment?
The seller’s agent is just double checking the mortgage pre-approval letter to see how solid it is. The seller and the sellers agent just want to make sure when they accept your offer that the loan has a good chance of closing. That’s what a mortgage pre-approval letter does for you the Metro Detroit home buyer.
I hope this explains the process a little better.
Russ Ravary your Oakland and Wayne County real estate agent
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