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People like to use the terms “pre-approval letter” and “pre-qualification letter” interchangeably, but they are two different things.
A pre-qualification letter can be issued after a simple conversation between a lender and a buyer. Based on what the buyer tells them about their credit, income, and assets, they write in the letter that the buyer can “probably” afford a home worth X.
A pre-approval letter, on the other hand, involves meeting with a lender and providing documentation to support what you’ve told them. The lender will then go through those documents and verify that the information is correct and you can afford that loan amount.
Lenders reserve the lowest rates for borrowers with the highest scores.
To get pre-approved, it’s a pretty simple process. Remember 30-2-2. You need to provide 30 days of your pay stubs, two years of tax returns, and two years of W-2s. Then, you need to provide proof of your assets and income via two months’ worth of bank statements. The lender will require physical copies of these statements, not just screenshots of your accounts.
The lender will then verify your debt by getting your social security number. Lenders always reserve the lowest rates for borrowers with the highest scores. If your score isn’t quite where you want it to be, the lender can provide advice on what you need to do to increase it and help you get a lower rate.
Next, they’ll verify your employment and you’ll provide them with a copy of your driver’s license. Doing these things will ensure that you’re in the best position to secure a home. With multiple offers becoming common in our market, a pre-approval really helps you stand out among buyers who don’t have one.
If you have questions for me about this topic or anything else about real estate, feel free to reach out via phone or email. I would love to hear from you.