All Pre-approval letters are not created equal

On the credit card commercial, the saying is “what’s in your wallet?” I ask, “what’s in your pre-approval letter?” Does it say too much or too little?

Pre-approval letters are standard equipment for any buyer making an offer. Any seller will ask for proof that you can get your loan. I get a lot of questions about pre-approval and pre-qualification. The problem is that those terms have lost their meaning. A pre-approval, in my book, involves a review of all your financial information and its verification. If possible, I also like the mortgage originator to talk to an underwriter about anything that is not typical. That way, no surprises.

Next, your letter should say as little about your finances as possible, but say boldly, that your personal finances are in order.
Here’s an example:

“Based on the information you provided, you are “pre-approved” for your purchase of up to $_____ with a $____ mortgage amount. This is based on your current level of income, credit and assets, as well as prevailing interest rates.”

Is that good enough? It says that the lender knows your current income, credit and assets. This does not say that they have been verified. It does say what your expected loan amount will be. I’d give it a B-.

Here’s another:

“I am pleased to tell you that based on the information that you have provided, you have been pre-approved for a purchase price of $_____. We have verified and approved your credit, income and assets. A final commitment is subject to a fully executed purchase and sales agreement, a satisfactory, certified appraisal and underwriter review. “

This one is a B+/A-. There is no loan amount or percentage of down payment expected. It does clearly state that you financial information is already verified.

Here’s another:

“This pre-approval is based on the information you have provided to date and also that there be no future adverse or substantial changes in your credit, financial, or employment status prior to the closing of your loan. (Company name) reserves the right to re-verify your information at any time during this process. If you have any questions during this process please contact me at your convenience. TERMS Loan Type: 30 Year Fixed Property Type: Single Family/Owner Occupied Loan Term: 360 months Purchase Price: $_______ Loan Amount $_______ Qualifying Rate : Current%

In order to complete this process you must furnish us with the below listed items:
1. Fully satisfactory appraisal supporting purchase price (to be ordered by _______).
2. Fully executed Purchase & Sale Agreement
After final review of the completed loan package, our Underwriting Department will make the final decision regarding loan approval. At the closing we will require:
1. A duly executed Note and Security Instrument, evidencing the indebtedness and the creation of a first lien on your new home to secure the obligation to repay the indebtedness.
2. Title Policy and evidence of appropriate Hazard Insurance coverage, all related to the mortgaged property.

This one, I give a C-. TMI about the loan. It is none of the seller’s business whether you are borrowing for 30 years or 15 years. All the requirements at closing are standard; again, not the seller’s business. It does not say that your financial information has been verified, but makes very clear that it can be re-verified at any time. It hedges too much.

The best ones say this:

“This letter is to confirm your pre-approval by (company name) for a purchase of $_______. A final commitment and closing will be subject to an underwriter’s satisfactory review of the following: 1. Property appraisal 2. Signed contract to purchase 3. Minimum 20% down payment Please note that any adverse credit history or employment status may affect your ability to borrow.”

Another example:

I am pleased to inform you that based on the information you have provided, you have been pre-approved by (company name) for mortgage financing of $_____. This amount represents 80% financing of a home with a purchase price of $_______ While income, assets, credit and employment have been reviewed, this pre-approval is conditional upon receipt of satisfactory purchase and sale agreement, appraisal, condominium, and investor approval.

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