LOAN PRE-APPROVAL LETTER
A letter from your chosen lender that states what amount you’ve been pre-approved for to borrow for the purchase of real estate. The letter will also include the purchase amount you’ve been approved for as well.
In California, if you’re using the California Association of Realtors ( CAR ) residential purchase agreement this letter is required to be presented to a seller by the buyer within 3 days of acceptance of an offer. As a buyer, you can opt to present this letter initially with your offer. I always recommend this because it tells the seller you’re serious and have all your ducks in a row. Also in a multiple offer situation, this can help a buyer stand out against other buyers who either aren’t as well prepared and may not be qualified to borrow and purchase.
There is a difference between a pre-qualification letter and a pre-approval letter.
A pre-qualification letter is not a formal approval and the lender has not pulled a clients credit or fully qualified a client by reviewing their financial records. A pre-qualification really has no validity because a borrower has not provided a lender with any official financial documents to review for this letter.
In a pre-approval letter, a borrower must provide a lender with their proof of employment, financial documents showing all assets, savings, 401 K, etc as well as allowing the lender to pull the borrower’s credit report. The borrower then fills out an application and the lender reviews the borrower’s financial profile before deciding what amount the borrower will be approved to borrow. This is the letter that is required to be provided in California when offering to purchase real estate.