Mortgage prequalification letters can be worthless words on a paper or it could close the deal!
Nowadays just about every real estate agent requires that a buyer be prequalified prior to spending valuable time and money showing houses to a buyer. Some buyers still ask “Why is this needed?” and there are a lot more reasons than you may think. If you haven’t read our recent article “Prequalification letter, why are buyers agents requiring it before showing houses?”, check it out here.
One thing to know as a buyer, seller, and Realtor is that not all prequalification letters and lenders are created equal. There are 3 main categories of prequalification letters offered by lenders which we explain today so that you have the knowledge to make your best decisions during the purchase process.
Why Prequalification Letter instead of Pre-Approval Letter?
Pre-Approval, technically because it contains the term “approval” is equal to issuing a ‘commitment’ which come with legal liability to a lender. For instance, if a lender provides a “pre-approval” that means that they should have a situation which requires a Loan Estimate and then requires the lender to meet certain tolerances which can cost a lot of money if not accurate up-front. It is very difficult to disclose accurately up-front when the costs and terms of the contract are not known. Therefore a majority of lenders would and should use a prequalification letters rather than a pre-approval letter.
Benefits to the buyer for waiting for the full prequalification letter
- If the buyer provides the documentation quickly, the prequalification can be very quick too
- Limits the chances of bad surprises that can kill the dream of moving in
- Your prequalification amount is more accurate which saves you time
- Complicated situations can be reviewed by underwriting up-front
- You can close quicker because you have provided the documentation