Tucker Mortgage

What’s the Value of a Pre-Approval Letter?

Right now, the housing market is enough to drive anybody a little crazy. 

Prices and sales spiked in unprecedented ways in the early part of 2022, making it very difficult for buyers. While inflation has cooled things down a little, many buyers in Indiana are still finding competition for the homes they want to be pretty stiff. That competition may even increase as summer winds into autumn since fewer homes typically go up for sale once the school season, bad weather and holidays get started.

So, what can you do to give yourself an edge over other buyers? One smart move includes getting a pre-approval letter from Tucker Mortgage

What’s the Difference Between Pre-Qualification and Pre-Approval?

A lot of buyers mix up mortgage “pre-qualification” with mortgage “pre-approval.” While they both involve an analysis of your overall financial situation, their purposes (and their value) are quite different.

The pre-qualification process is fairly quick and informal – and it relies largely on your self-reported financial state. While lenders usually assess your overall financial fitness via a “soft pull” of your credit, they will generally just ask you questions like:

  • How much do you have saved for a downpayment?
  • How much income do you have and where does it come from?
  • How much are your monthly bills (including credit cards and student loans)?
  • What type of mortgage are you considering (15-year, 30-year, fixed or variable)?

A lot of buyers will seek pre-qualification when they’re exploring their options with several different lenders but aren’t quite ready to commit. Essentially, this process allows you and the mortgage lender to size each other up. 

When finished, the lender may be willing to give you a pre-qualification letter – but that basically just tells you how much home you can afford. It’s not even a tentative offer of an actual mortgage. Just the same, a pre-qualification letter does have value, since it can help buyers understand what they can really afford. After all, nobody wants to fall in love with a $500,000 home when the most they can finance is $350,000.

By comparison, the pre-approval process is much more involved. You need to complete an actual mortgage application, submit all your financial records for scrutiny by underwriting and go through a full credit check. The pre-approval process can be quite intensive as the lender’s underwriting team pours over your credit card and banking records, so you shouldn’t expect a quick answer. 

If the lender believes you qualify for a mortgage, you’ll get a pre-approval letter that’s a tentative offer (but not a full commitment) that’s usually good for 120 days. Just like a pre-qualification, a pre-approval letter lets you know exactly how much home you can afford, but it’s as close as you can get to actually having a mortgage agreement with a lender before you actually have a deal with a seller. 

What Are the Main Advantages of a Mortgage Pre-Approval?

If neither a pre-qualification nor a pre-approval gets you a firm commitment from the lender, why should you go through the more intensive pre-approval process – especially before you’ve even picked out your dream home? 

It all comes down to surety and speed when it comes time to actually place a bid – something that is critical when the housing market is hot. With a pre-approval letter in your hands:

  • You eliminate all guesswork. While a pre-qualification is a bit of educated guesswork, a pre-approval will tell you the maximum amount you can afford to buy. You may also know exactly what type of loan and terms (such as the interest rate) you’re looking at, which helps you decide how much you’re comfortable borrowing. 
  • You will already have your financial documents in order. This also means that you will have addressed any problems in advance with your lender, like a late payment on your student loans or a mistake on your credit report. This makes for a less-stressful borrowing experience.
  • The seller can have confidence in your ability to get financing. Many homes – even “fixer-uppers” – are receiving multiple bids at once after just a short time on the market, and great homes are going even faster. All other things being equal between your offer and the offer coming from another would-be buyer, the fact that you have that pre-approval letter in place can tilt the odds of the sale in your favor.
  • You will substantially shorten the time between offer and close. Again, this is something that can please a seller, especially if they’re in a hurry to move – but it’s also something that can make things a lot easier for you. Since you’ve already been through the underwriter’s microscope, the actual mortgage approval usually can happen in a matter of days.

When you submit a copy of your pre-approval letter with your bid, you and the seller can proceed with confidence.

What’s the Final Word on Pre-Approvals?

In short, the somewhat chaotic nature of the current housing market has made it more important than ever to go into the home-buying process with your eyes wide open and your finances in pristine order. 

A pre-approval letter from Tucker Mortgage means more security for the seller of the home you want – and more of an advantage for you when you make your bid. Tucker Mortgage is among the rare lenders that will give potential buyers a true and accurate pre-approval letter, which only makes your house-hunting journey easier and your bids stronger.