Why You Need A Pre-Approval Letter Or At Least Be Pre-Qualified When Purchasing A Property
A pre-approval letter verifies your ability to purchase a property. It is based on several factors including your credit score, job and employment history, current income, bank references, and the ability to fund your down payment. It does not specify numbers for each item, however. After all, you wouldn't want to advertise your bank account numbers or credit score to every seller or broker you encounter. But the letter verifies that a responsible lender has taken a good look into each area and drawn a conclusion about your home-buying ability.
Apply for a pre-approval letter and your lender will tell you exactly what information is needed. But a few items are certain to appear on the list, including:
*Two years of tax returns complete with the W-2 forms verifying your income.
*Your most recent pay stub, showing you're still employed.
*At least two recent bank statements.
*Verification of other sources of ongoing income such as alimony, child support, or a second job.
*You'll also need a signed authorization for the lender to order your credit report, although for this, the bank will make it easy with a form for you to sign.
If you're applying online, you can expect to submit these items by fax. If you're visiting a lender in person, you'll save time by arriving with these items in tow. If the property purchase will be a joint affair (say among a husband and wife), you will obviously want documentation for both parties.
Obtaining a pre-approval letter may be instantaneous (particularly online), or it may take up to 48 hours, depending on bank bureaucracy.
The holders of "pre-qual" letters have at least walked into a bank or gone online and answered a few questions about their financial situation. But such letters require basically no verification.
Highest on the totem pole, where you should aim to be, is the pre-approval position. Here your assets, income, and debts are actually verified by the lender. But even a pre-approval letter is not binding. It is not a mortgage commitment or guarantee of credit. Banks know your situation might change between now and closing time.
A pre-approval gives you leverage when negotiating with sellers. You as well will feel more confident knowing what you can borrow and buy. In today’s market, you are expected to provide a pre approval or pre qual letter along with your offer when bidding on a property of interest.
The letter can be written in one of two ways. It can state the maximum purchase price you can afford, addressed "To Whom It May Concern." Or it can be addressed to a specific seller or his agent, stating your qualifications to pay a specific amount for the home. The latter approach is more personal and often more powerful, if it works. The former, clearly, is more useful in differing situations.
Note: When purchasing a property in Hawaii. It is highly recommended to use a “local” lender that is based out of Hawaii. There are laws here about properties that are exclusive to Hawaii. Having a local lender will give you the advantage of having a smoother transaction because of this.
I am happy to provide a list of local lenders to you that I have worked with successfully. They are seasoned, highly experienced agents that will do a good job.
Lila Marino-Camacho (RA)
Coldwell Banker Pacific Properties
Cellular: (808) 341-6034