Pre-Approval Letter
Definition and meaning of Pre-Approval Letter in real estate.
A pre-approval letter is a document issued by a mortgage lender stating that a buyer has been tentatively approved for a loan up to a specific dollar amount.
In more detail
This letter is one of the most critical documents a buyer can have when making an offer on a house, as it proves to the seller that the buyer has passed a lender's credit check and financial review. Real estate agents usually require buyers to obtain this letter before showing them homes to ensure they are looking in a realistic price range.
The letter typically outlines the maximum loan amount, the interest rate, the loan program, and any conditions that must be met before final funding. It is usually valid for a limited time, usually two to three months, after which the lender must update the buyer's credit file.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Typical timing | Before making an offer on a home |
| Validity period | Typically sixty to ninety days |
| Main benefit | Increases the buyer's credibility in negotiations |
A buyer submits their pre-approval letter along with their purchase offer to show the seller they have the borrowing power to complete the transaction.
Frequently asked questions
Do sellers require a pre-approval letter?
While not legally required, most sellers and listing agents strongly prefer or demand a pre-approval letter before they will consider a buyer's offer.
Can a lender revoke a pre-approval letter?
Yes, a lender can revoke the letter if the buyer's financial situation changes, such as if they lose their job, take out new loans, or if their credit score drops before closing.