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What is a pre-approval letter, and why is it important?

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In Dover, New Hampshire over the last six months of real estate transactions, 136 deals closed in 8 days or less. The average days on market for any given property in Dover was 22. In Portsmouth, 111 real estate transactions happened in 9 days or less. In Rochester, 141 less than 8 days. In Somersworth, where there were only 80 transactions in the past six months, 40 closed in 7 days or less.

A pre-approval letter is a document from a lender that states the amount they are willing to lend a borrower for a mortgage. It is based on an evaluation of the borrower’s financial situation, including their credit score, income, debts, and other financial details. And first and foremost, in the speed of this market, a pre-approval sets you up for success.

All of my buyer clients have had a pre-approval letter in place before we began shopping. The letter shows sellers you are a serious buyer with the financial means to purchase a property. Sellers will negotiate with someone who has already secured financing. Sellers will ignore buyers who do not have a pre-approval letter.

Additionally, a pre-approval letter can help identify any financial issues or credit problems early on, giving you time to address those issues before you begin to find a home. The letter can help you understand how much of a house you can afford, which narrows your home search to properties within your price range. This saves time and focuses your efforts on viable options. Because much of the financial vetting is done during the pre-approval process, the actual loan approval can be quicker, leading to a faster closing.

Obtaining a pre-approval letter from a lender can take anywhere from a few hours to a few days. The speed at which a lender processes pre-approval applications can vary. Some lenders can issue pre-approvals within a day, especially if they offer automated systems. Others might take a few days to review your financial information. If you financial situation is straightforward, the process is likely to be quick. However, if you have multiple income sources, self-employment income, or less-than-perfect credit, it might take longer as the lender may need to conduct a more thorough review.

Some lenders, by the way, offer underwriting before you buy—though this is rare. Underwriting is a crucial step in the mortgage process because it protects the lender by ensuring that the borrower is capable of repaying the loan. For borrowers, a successful underwriting process means they are one step closer to securing their mortgage and purchasing their home.

If you can have the underwriting portion of the buying process taken care of before you shop, this provides you a distinctive edge over other buyers in your market.

Steve Bargdill in a tie
steve bargdill

As an experienced real estate professional with a background in higher education, Steve Bargdill brings a unique set of skills to the table at Keller Williams Coastal Lakes and Mountains Realty.

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