Financing Pre-Approval

Some sellers require that a prospective buyer provides a pre-approval letter to demonstrate his ability to get financing before an offer will be considered. This is more likely to be required when there are a lot of buyers around and the seller can afford to be selective about the offers he receives. Pre-approval is almost certain to be a condition of making an offer on a foreclosed property or a short sale. Banks in particular are likely to have firm rules on what is an acceptable pre-approval letter. It will need to come directly from a major mortgage source (not from a broker), and it will need to be current or to have a stated in-range time limit for the offer.

The formal pre-approval process is for a specific property, and is a more detailed process than pre-qualification, requiring documentation to verify the data on which the loan offer will be made.

Factors that are considered before a lender will issue a pre-approval letter for a mortgage loan include the buyer's employment history, his credit history, and his monthly income and expenses.

The documentation you will need to provide will depend on a number of factors. US citizens will have different requirements from foreign nationals, for example. In the case of overseas buyers the lender will not have access to the structured credit reports that are available in the case of US residents, so they may ask for alternative documentation to support the buyer's credit history.

The main difference between the general pre-qualification and the specific pre-approval is that the lender will want documentation to support any figures you offer in respect of your income, expenditure, and employment.

Their requirements are likely to be less stringent if you are intending to put down a 30% deposit. If you want to put down only 20% you will find that the burden of documentation can become quite heavy.

If you plan to offer for bank-owned properties you really need to have your pre-approval under way, because otherwise you won't be able to move quickly enough when you find the right property.

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