Become a Homeowner

The Truth About Pre-Approval Letters

We’ve all heard the horror stories of issues getting to the closing table. Lenders are asking for documents already received, multiple contract extensions, and even worse, loan denials in the 11th hour. We cringe when we hear these stories, not just because they are horrible, but because it was completely avoidable.
If you’re wondering what causes this much difficulty, we can answer that. The answer is easy; you were pre-qualified, not fully approved.
The truth is pre-approval letters don’t work; they never have. To successfully close a home loan, you must have a Full Loan Approval.
There is a HUGE difference between being pre-qualified and having a full loan approval. You need to know the difference if you’re serious about buying a home!
Pre-qualifications are most famously provided by banks, large online lenders, and lazy mortgage brokers. Typically, they’ll pull your credit and ask you a few questions about your income.   Then, they’ll say, “Great; you’re pre-qualified for a purchase price up to 250k; I’ll go ahead and send a letter to your realtor.”
Fast forward a couple of weeks. You’re now under contract for a 250k house and have spent money on inspections and the appraisal. But suddenly, you get a call or email, and the lender is telling you something like one of these lines:
  • The underwriter needs more information
  • The underwriter wants this, so we’ll need a contract extension
  • The underwriter has denied your loan, so we need to change loan programs
  • The underwriter has denied your loan
You are now furious and embarrassed. The realtors are beside themselves. The seller has lost a sale, and everyone is up in arms. The whole situation is a colossal mess; how did it all go wrong? In short, your lender did not examine what’s necessary to see if you could obtain loan approval.

A mortgage is the largest financial transaction you'll ever make. If you're going to do it, you need to do it the right way. The right way is to obtain a full upfront loan approval.

A full upfront loan approval occurs when your mortgage broker sends your credit report and all income and asset documentation to their underwriter for review. This underwriter is the lender that will fund your loan at the closing table. The underwriter then issues a loan approval that has Conditional Approval status. This status means just what it sounds like; your loan is Approved, and the conditions are related to a house you’ll later add to the loan file.
Your conditional loan approval provides you with crucial information you need to shop with confidence, primarily your maximum monthly payment. This information is paramount because:
Loan approvals are based on monthly payments, not purchase price.
You’re destined for failure if you don’t know what that payment is and rely on the generic pre-approval letter citing a 250k purchase price. Not knowing your monthly payment limit is exactly why loans fall apart in the 11th hour.
Before you contact a Realtor and start the house-hunting process, you must know where you stand on the financing side. It makes zero sense to look at houses you’re not approved for. And, it makes less sense to spend money on a home that you’re not going to be able to close on. The only way to guarantee a successful loan closing is to know your loan parameters upfront by getting a full upfront loan approval.
Failure to obtain upfront loan approval is why drama occurs with loan closings. If you haven’t gone through the upfront loan approval process we detailed above; you are not ready to start shopping for houses.
Get an upfront full loan approval! If you do, you’ll have a super smooth loan closing with zero drama!