What is this “Lender Letter”?
If you are going to need a mortgage loan to purchase your new home, one of the first questions you will face from your Realtor is “have you been pre-approved (or pre-qualified) for a new loan with a mortgage lender?” What is the difference? Believe it or not, many mortgage bankers exchange the phrases like they are synonymous, but there are subtle and, in some cases, very important differences. Most home buyers will be asked for a “Lender Letter” to present to the seller and their agent upon submission of your initial offer to purchase agreement. The letter is usually based on information gathered or exchanged related to either a pre-approval or pre-qualification process.
So what is the difference? Here is how I would describe each:
- Pre-Qualification is a loan officer’s opinion based on verbally supplied information related to a potential borrower’s income, assets, and credit profile relative to a currently available loan product guideline.
- Pre-Approval is a fully underwritten mortgage loan in which income and asset documentation is provided as well as a credit reviewed and validated by a mortgage loan underwriter who issues a commitment to lend subject to maximum terms associated with interest rates, monthly payments, cash to close, and loan amount, all subject to a ratified purchase agreement and an acceptable property appraisal (whew…that is a lot of stuff!).
So, one is maybe a 15 minute call, and the other is more like a 20 day process.
