This blog will be an overview of the three different types of approval letters that you can get from a lender. There are three major variables that the lender controls when you’re purchasing a home and these variables are called Terms when you’re negotiating for the best possible price.
If you’ve received a Pre-Qualification letter from a lender, you’ve typically only had a verbal conversation with this lender and haven’t filled out a loan application or processed any of your documentation. Let’s say you’re writing an offer with this letter; you send it to the listing agent and they will immediately know that you haven’t taken the steps necessary to get approved for the loan. This is a huge red-flag for listing agents because there is usually a reason that the buyer hasn’t yet gone through the steps to getting fully approved.
Sometimes it’s as simple as the lender or the buyer’s agent haven’t done a good job preparing that buyer for writing an offer, but more often than not, it shows that the buyer may not be serious and therefore can hurt your chances of getting your offer accepted.
This has been the gold standard for a very long time in real estate. To have the pre-approval letter means that you’ve filled out a loan application and have had your credit run and reviewed by the lender. They may have processed (collected) some documentation to support what was written on your loan application. The lender will run this information through their system and will spit out first, whether or not you’re able to be approved for a loan and second, how much you are capable of borrowing.
This shows that you’ve gone through the steps necessary to really find out what you’re capable of purchasing.
3. Fully Underwritten Approval
If you’re looking to be a competitive home buyer and set yourself apart from most other buyers in the market, this is the tool that you’re going to want. What separates a Fully Underwritten Approval letter from a Pre-Approval letter is that the lender has not only gone through the steps to get pre-approved, but they’ve processed (collected) ALL of the necessary documentation that will be required throughout the process. They’ve sent that file to their in-house Underwriter, who’s job is to find problems and ask for further verification. This Underwriting will typically take between 24-72 hours to come back to the lender, usually asking for additional information, which is processed and sent back to Underwriting for approval. Once all of this is complete, the lender, if approved, will be able to send a Fully Underwritten Approval letter, which allows you to have the most competitive terms possible. With this letter, you will be able to write offers that compete with cash offers.