Once you decide to look for a new home, you need to get an idea of what you can qualify for. The best way to do that is to meet with a loan officer, either in person or over the phone. The loan officer will ask you several questions and usually get the information to pull your credit report. This can give a loan officer enough information to put together a prequalification letter (prequal letter).
If you are at the point of writing a purchase agreement, a prequal letter won't go very far. It doesn't show that your income or assets have been verified, honestly, sometimes they are written without the loan officer even pulling your credit report. Basically it doesn't mean very much! In this current market where homes are selling quickly and usually in multiple offers, you definitely need a stong approval letter.
An approval letter means that your loan officer has pulled your credit report, gathered your information to verify your income and your assets. They have taken the time to run your loan through an automated underwriting system such as desktop underwriter. The loan officer should have gone over everything to make sure you meet the criteria for the loan you are applying for. If there is something unique, the loan officer may have talked to an underwriter to verify that you will be approved based on your situation.
I recently had a client that had been approved with me, however I now needed their 2012 income taxes. As I went over their tax return, there were several new items that affected that loan approval. They were going to write an offer on a new home and I had to tell them that they would not be able to qualify based on the new tax returns. If I hadn't taken the time to look over the tax return, I woudn't have known that their situation changed. They did think about talking to another lender, however the agent did remind them that we all underwrite our loans to the same guidelines. The other potential issue would be a loan officer not going through the tax return completely and not asking some of the questions that could lead to problems later on.
When you talk to your loan officer, make sure they are going over everything. If you are self employed, you need to send your entire federal tax return to the LO – that's the only way they can accurately calculate your income. If you have more than one property, they will also need your tax return and your current mortgage statements to calculate your income. Discuss your down payment, make sure you are comfortable with the amount you will need for closing.
One other letter that is sometimes requested is a loan commitment letter. This is different than an approval letter. This means you have written a purchase agreement, the appraisal and titlework are done and your file has been reviewed by an underwriter. When I write a commitment letter, it means that buyer is ready to close. Usually this is requested on the purchase agreement and the sellers want it anywhere from a few days to a few weeks before closing.
With the current market, you will want to make sure that you are getting a stong approval letter to help you get the home you want. Lately, it seems like I am getting phone calls from the listing agents wanting me to verify the information on the approval letters. I am always more than willing to help my buyers by talking to the listing agents and trying to make sure my buyers get their offer accepted!! If your loan officer asks you for more information, make sure you get it to them – it can help to get your a better approval letter which means a better chance at getting the home you want!
Leslie Vanderwerf, NMLS ID#335509, American Mortgage & Equity Consultants – Email – Website
