11/29/2016 www.greatcalgaryrealestate.com/blog/the-importance-of-a-mortgage-pre-approval-letter/print.html

http://www.greatcalgaryrealestate.com/blog/the-importance-of-a-mortgage-pre-approval-letter/print.html 1/6

The Importance of a Mortgage Pre-approval LetterPosted by Joe Samson on Wednesday, October 12th, 2016 at 5:22pm.

Are youconsideringgoing throughthe mortgagepre-approvalprocess beforeyou begin yoursearch for ahome? Greatidea! A couple ofthe mostcommonsituations youmay avoid bymaking thissmart decisioninclude:

Beingturneddown byan agent orseller tolook at ahome. Thisisn’tbecausethey don’twant tohelp butsimplybecausethey won’tknow ifyou canafford thehome orare seriousaboutbuying.Falling inlove with ahome thatyou cannotafford.What ifyou founda place thatwasperfect for you, but it was way outside of your budget? This could lead to a lot of stress, frustration,and disappointment for you, the seller, and your agent.

11/29/2016 www.greatcalgaryrealestate.com/blog/the-importance-of-a-mortgage-pre-approval-letter/print.html

http://www.greatcalgaryrealestate.com/blog/the-importance-of-a-mortgage-pre-approval-letter/print.html 2/6

Obtaining a mortgage pre-approval letter makes sense when you consider the stress that can be causedwithout it. The situations listed above are some of the most common, but they are not the only ones that maybe experienced. By taking the time to get pre-approved before beginning to shop, you’ll have evidenceof your ability to pay and the fact that you’re serious about buying as well. Real estate agents and sellersalike will appreciate this and be eager to work with you as a result.

If you want to get the home buying process started with confidence, then taking the time to get a pre-approvalis necessary to make sure that you are ready to buy a home. The first step is to find a mortgage lender, whowill run your credit and obtain important financial information in order to determine your eligibility.Fortunately once this is over and you have been pre-approved, you can begin shopping for your next home.With that pre-approval in hand, you’ll be treated as a serious buyer from the very first phone call,whether you’re speaking with an agent or seller.

What is a Mortgage Pre-approval Letter?

This letter, while it may not seem like a vital document to you, is incredibly important to real estateagents and home sellers. A mortgage pre-approval letter is evidence of how much real estate you canafford and that you’re serious about taking the next step when buying a home. However, it’s importantto keep in mind that while a pre-approval letter does carry weight, it is not a guarantee of a loan.Fortunately it’s proof enough that you’re capable of buying, which is why agents and sellers value it somuch.

How Do I Get a Mortgage Pre-approval Letter?

Getting a pre-approval letter is easier than you might think. Once you have selected your lender andreceived the thumbs-up from them to go and look for a home, you can ask them for an official letter toconfirm their statement. It is a very common practice in the real estate and banking industry toobtain a mortgage pre-approval letter. When you’re working with a reputable mortgage team,providing this letter should be standard practice for them.

How Long Does it Take to Get a Pre-approval letter?

The answer really depends on how much time do you need to provide all the documents to the lender?The sooner you can send the lender or the mortgage broker the supportive documents, the fasteryou will be approved and provided with a mortgage pre-approval letter. Based on my experience itshouldn’t take them longer than 24-48 hours to provide you with an answer once you have provided allthe supportive documents to them.

Why Do I Need a Pre-Approval Letter?

While you may be able to verbally express that you’re ready to buy, there are many great reasonsfor being pre-approved for a mortgage. A pre-approval letter is physical evidence of the fact thatyou are a serious buyer with capacity to purchase.

Sellers really don’t know anything about the potential buyers coming through their door. And for validreasons they are always skeptical whether the buyer is going to succeed at qualifying for the mortgage.You will find that sellers take you more seriously when you’re equipped with a mortgager pre-approvalletter, and your agent is able to help you in a much more effective manner as well.

11/29/2016 www.greatcalgaryrealestate.com/blog/the-importance-of-a-mortgage-pre-approval-letter/print.html

http://www.greatcalgaryrealestate.com/blog/the-importance-of-a-mortgage-pre-approval-letter/print.html 3/6

For instance, with this letter they may be able to help you to negotiate a better deal due to the factthat you’re a bonafide buyer. Most pre-approved buyers also find that sellers prefer to work withthem over non-approved buyers, giving them an edge over the competition.

Another important reason why you need a pre-approval letter is because it clarifies the amount that youcan actually afford to borrow. This will make it easier to search for your next home and can save youfrom the heartbreak of falling in love with a home that you simply can’t fit in your budget. Making thiseven better is the fact that pre-approval can help speed up the closing process by the only having toapprove the purchased property.

Benefits of a Mortgage Pre-Approval Letter?

1. Pre-approval Letter Provides Proof of Financing

Most real estate agents request that clients obtain pre-approval before they ever show them ahome. This is for good reason, as it’s an unfortunate reality that unqualified buyers waste theirtime and therefore money. Agents want security that their clients have the ability to buy, which isexactly what this letter shows.

2. Negotiate Better Price & Term

Do you want to be in a better position to negotiate on a home you love? A pre-approval letter willhelp, as it proves you have the funds and therefore the deal is more likely to go through. Even if aseller has multiple offers, you may gain an advantage over the others if they haven’t shown proofwith a pre-approval. This letter is also paramount if you’re buying in an area that’s high indemand, as some sellers may not even consider working with buyers who aren’t pre-qualified. To make yourself stand out even more, work with a reputable lender. If you aren’t surewho to go to, ask your real estate agent for referrals.

3. Savvy Sellers Want to See Proof of Approval

An additional reason why top real estate agents request pre-approvals from buyers is the fact thatan increasing number of sellers actually require it. This is because sellers only want to work withserious buyers who aren’t going to waste their time. They want security in knowing that thebuyer is serious and financially capable of affording their property, which is exactly what the pre-approval letter shows.

Of course, you can attend an open house because agents cannot screen walk-ins for this, but if youwant a private showing, don’t take it personally if the agent asks you for your pre-approval letterfirst. Plan on making an offer? Your letter of approval will ease the seller’s mind because theywon’t have to just take your word for being able to afford their property.

11/29/2016 www.greatcalgaryrealestate.com/blog/the-importance-of-a-mortgage-pre-approval-letter/print.html

http://www.greatcalgaryrealestate.com/blog/the-importance-of-a-mortgage-pre-approval-letter/print.html 4/6

4. Pre-approval Reduces Condition Time

Obtaining a mortgage takes a lot of time, as you have to prove your income, dig up financialrecords, and meet all requirements of the lender. Fortunately if you get pre-approval ahead of time,this process can actually be shortened considerably. While this takes a lot of stress off of yourshoulders, that’s not the only advantage. Sellers absolutely love buyers with a mortgage pre-approval letter, as it decreases the amount of time they have to wait between accepting anoffer and removing all of the contingencies.

5. A Good Real Estate Agent Will Not Work With Un-approved Buyers

Real estate agents work hard for their clients by showing them properties, negotiating for them,and helping you navigate through the buying process. With all the time they invest in you, it’s easyto see why they want to make sure you’re a serious buyer from the start. This provides them withsecurity that you’re not casually browsing and can actually afford the homes that you want them toshow you.

To ensure a more enjoyable experience for both you and your agent, get pre-approved beforebeginning the process. Your real estate agent will greatly appreciate you having a mortgagepre-approval letter and will be able to get started assisting you much more quickly.

Pre-Qualification Letter vs. Pre-Approval Letter

While a mortgage pre-approval and pre-qualification letter might seem like they are interchangeabledocuments, they are actually very different from one another and often befuddles even industrymembers. By understanding these differences, you can avoid major road bumps in the buying process.

The process of pre-qualification only takes a few minutes. A mortgage pre-qualification gives you aslight idea of what kind of loan you might qualify for. Being an informal estimate, this is ideal forbuyers are in the very initial stages of buying a home.

A mortgage pre-approval is a more intensive process that requires a credit check, financialverification, and proof of down payment, a pre-approval is essential if you’re ready buy a house. Itprovides a far more accurate idea of what you can afford so you can begin looking at homes within yourrealistic price range. A pre-approval letter will also declare your purchasing power once you do find aproperty that you like.

Unfortunately the term of pre-qualification and pre-approval are being used interchangeably and there isalways great confusion between the two. At the end of the day, the lender is the only entity that canactually approve a mortgage and it’s best to get a mortgage pre-approval commitment letter from them.A mortgage commitment letter is going to cover all the conditions that needs to be in place for themortgage to be funded, which makes the mortgage commitment letter a more valid documentthan anything else.

How long is a Mortgage Pre-approval Letter Good For?

11/29/2016 www.greatcalgaryrealestate.com/blog/the-importance-of-a-mortgage-pre-approval-letter/print.html

http://www.greatcalgaryrealestate.com/blog/the-importance-of-a-mortgage-pre-approval-letter/print.html 5/6

Changing Jobs or Quitting Your JobOpening or Closing a Line of Credit AccountFalling Behind on Payments/Missing PaymentsOpening a New Credit Card or Obtaining a LoanClosing Credit CardsChanging Your Financial BehaviourWithdrawing Large Amount of Money fromChequing or Savings AccountsConcealing Down Payment Gifts

Interest rates tend to fluctuate based on many variables and lenders are only able to guaranteed to thehome buyer a fixed rate for a short period before buying house. Typically banks provide a “rate-hold”for 90-120 days after pre-approving someone for a mortgage. Receiving a guaranteed interest rateuntil you find your new home is another benefit of getting a mortgage pre-approval/commitment, butyou need to be careful about not to do things that could jeopardized your pre-approval.

What Can Hinder a (pre) Approved Mortgage?

Although having a mortgagepre-approval is securityknowing how much you canafford, there are rules andstipulations you must followonce your approval isfinalized. In most situations,you must pay very closeattention to your finances andmajor life changing eventssuch as changing jobs orbefriending a cosigner. Thismeans continuing to make payments of your credit obligation on time and avoiding any new loansor credit cards that may affect your credit score. Any changes that occur in the time betweenhaving your offer accepted and closing can cause a re-examination of your pre-approval and resultin a derailed loan. With the outmost certainty, lenders will verify employment and creditworthiness just prior to releasing the funds. Some specific activities you should avoid include:  

Final Thoughts

As you can see there are many elements of buying a home and being well prepared in advance is goingto server you well along your journey. Having a mortgage pre-approval letter in place is not aprerequisite to purchase real estate. Although sometime it can be perceived as an extra hoop that othersjust want home buyers to jump through. By now I trust that you can see that foremost it is really goingto benefit the home buyer by being organized and having the right mortgage team in your court.

Be sure to ask your real estate agent for references and recommendations of banks and mortgagebrokers that their clients had a great experience working with in the past. You can have peace andcomfort knowing that they will only steer you towards those individuals who provide an exceptional jobto get your mortgage approved.

11/29/2016 www.greatcalgaryrealestate.com/blog/the-importance-of-a-mortgage-pre-approval-letter/print.html

http://www.greatcalgaryrealestate.com/blog/the-importance-of-a-mortgage-pre-approval-letter/print.html 6/6