In today’s market, it’s nearly impossible to get an offer accepted without a pre-approval. This letter lets the Seller and their agent know that you, as a Buyer, can afford to purchase the home. So while it’s not technically required to include this with an offer, it is rare that a Seller will take the risk of taking the home off the market or lose momentum on the home for an offer that doesn’t include this.
A preapproval letter will generally include the loan amount you qualify for, the amount of funds being used for a down payment, loan details like payment and rate, FICO score, and how the information was verified.
Not only does it tell the Seller that you can purchase the home, it is also a great way to get a head start on the actual loan process. If there are any potential issues with credit, it’s something that can be discussed early on rather than discovering it late in the purchase process. Below are common requirements in order to get a pre-approval.
5 Requirements for a Pre-Approval
- Proof of Income – Provide proof of income (usually in the form of w-2 statements) for the last two years, recent pay stubs for the current year, proof of any additional income like alimony, and last two year’s tax returns.
- Proof of Assets – Provide bank statements and investment statements showing that the borrower has the funds for the down payment and closing costs.
- Good Credit – The lower the credit, the higher the interest rate, which means a higher monthly payment and likely the less someone can afford. Most lenders require a credit score of 620 or more.
- Employment Verification – Stable employment minimizes the risk that the borrower will be unable to pay long-term.
- Other Documentation – Provide a copy of the borrower’s driver’s license, Social Security Number (SSN), and signature, authorizing the lender to pull a credit report.