Read the letter line by line
Here is a hypothetical letter for an ordinary purchase, and what each line tells a seller:
- Loan amount: up to $680,000. What this lender is tentatively willing to lend.
- Purchase price and down payment: $850,000 with 20% down. The loan amount rests on these.
- Loan type: a fixed-rate conventional loan. Another loan type has other rules; compare FHA and conventional loans.
- Reviewed: credit report, pay stubs, W-2s and bank statements. This shows how deep the review went.
- Still required: an appraisal, title, insurance and a final check of income and credit before closing. These are the open conditions.
- Dated November 3 and good through December 3. After that date the letter needs updating.
- Signed by the loan officer, with a direct phone number and an NMLS number. This is who the seller’s agent can call.
Your own letter may not show all of this. Ask the loan officer to add what is missing or to tell you why it is not there.
Pre-qualified and pre-approved are labels, not standards
The Consumer Financial Protection Bureau says lenders use the two words differently. Some lenders write a letter from what you tell them. Others check your credit and read your documents first. The label does not tell a seller which one happened.
So ask the loan officer what was done:
- Was my credit checked?
- Did someone read my income and asset documents, or only take the numbers I gave?
- Has an underwriter reviewed the file?
- What conditions are still open?
When I represent a seller, a letter backed by reviewed documents counts for more. Either way, the Bureau’s preapproval guide is clear that the letter rests on assumptions and is not a guaranteed loan offer.
Loan amount, price and cash
The letter states a loan amount. Your offer states a price. The difference is your down payment, and closing costs come on top of it. A seller wants to see both halves: the letter for the loan and proof of funds for the cash.
You can ask the lender for a letter written to the offer you are making. A hypothetical: you qualify for more than you plan to offer. You offer $850,000 with $170,000 down, so the loan is $680,000. A letter that shows that price and that loan supports the offer without showing your ceiling. It does not change what you qualify for, and the lender decides whether to issue it.
Proof of funds usually goes with the offer as a separate document, with account numbers hidden. If the listing’s offer instructions ask for it another way, follow them. Our guide to making an offer covers the full package, and how much house you can afford covers the budget behind it.
Same price, different loan: a house and a condo
A letter is written with a kind of property in mind. A hypothetical: two homes at $700,000. One is a detached house with no association dues. The other is a condo with $500 a month in dues.
The price is the same and the loan may not be. Lenders count association dues in the monthly housing cost they qualify you on. Fannie Mae’s guide for lenders lists them with the loan payment, taxes and insurance. So the dues take up part of what you qualify for.
A condo also brings the project into the loan. The lender checks that the project is eligible, and some projects need a fuller review than others. See condo mortgage project approval.
Before you offer on a condo with a letter written for a house, ask the loan officer two questions. Does the letter still work with these dues? Which project review applies to this condo, and what does the lender need for it? The lender can tell you whether the letter stands or needs updating.
How long the letter lasts
Read the date on the letter. The Bureau says a pre-approval letter can carry an expiration date, typically 30 to 60 days out. The lender’s date controls.
Check the date before each offer. If it is close, or the kind of property has changed, ask for an updated letter. That can mean newer pay stubs and statements, and the lender decides whether to check your credit again. Plan on updating your documents at least once before you close.
On credit checks, FICO says its scores group hard inquiries made within a short period into one when you shop for a mortgage. The period is any 14 days under older versions of the score and any 45 days under the newest, and each lender chooses the version it uses.
So keep your lender shopping inside 14 days, which FICO also suggests. The Bureau’s page on mortgage credit checks uses the 45-day figure. Checking your own credit is a soft inquiry and does not affect FICO scores.
How the seller’s side checks it
When I represent a seller, I check a buyer’s letter three ways.
First, I read it against the offer: the loan amount, the price, the down payment, the loan type and the date.
Second, I look up the loan officer. Anyone can confirm a loan officer’s license on NMLS Consumer Access, which is free.
Third, with the buyer’s permission, I call the loan officer. Within that permission and the lender’s own rules, the officer can confirm that the file was reviewed, which conditions remain and that the letter is current. That call does not require handing over your documents.
Tell your loan officer when an offer is going in, so the call gets answered that day.
Who gets the letter and who gets your documents
The letter, and every update to it, goes to you and your agent. You and your agent choose the current letter to send to the listing agent with the offer. Proof of funds, when it is part of the offer, goes the same way, with account numbers hidden.
Your underwriting documents go to the lender only, through its secure system. That means pay stubs, W-2s, tax returns, full bank statements and your Social Security number. The seller and both agents do not need them.
The Bureau’s loan application packet list shows what a lender starts with: pay stubs for the last 30 days, W-2s and signed federal tax returns for the last two years, your two most recent bank statements and statements showing where the down payment comes from.
A gift needs a signed letter from the giver; see using family gift money. For a VA-backed loan, the lender also needs your VA certificate of eligibility and may be able to get it for you; see VA loan cash to close.
If a large deposit landed in your account recently, be ready to show the lender where it came from.
What can still stop the loan
A pre-approval covers you. It does not cover the home, and it does not freeze your file.
- The appraisal. A value below the price changes the math. Our guide to how much to offer covers a low appraisal.
- Insurance. Price the policy early and get a quote before your contingency ends.
- The loan size. The conforming loan limit is set each year, county by county, and a mortgage above it is a jumbo loan. Ask which side of the limit yours falls on.
- Changes on your side. The Bureau advises against applying for other credit right before or during the mortgage process. Do not finance a car or open new cards, and tell your loan officer before you change jobs or move money between accounts.
The letter does not hold an interest rate either. A rate lock is a separate step. The Bureau describes it as a rate that will not change between the offer and closing, as long as you close within the stated period and your application does not change. Ask when you can lock and for how long.
Pre-approval is not the Loan Estimate
A pre-approval does not commit you to that lender. Once you have a property, a lender must send a Loan Estimate within three business days of receiving six things: your name, your income, your Social Security number, the property address, an estimate of the home’s value and the loan amount you want.
You do not have to hand over the purchase agreement or income documents to get one. The Bureau suggests choosing a lender after your offer is in and you have Loan Estimates to compare.
Which step is yours
- No letter yet: start on the home loans page.
- A letter in hand and a home picked: go to how to make an offer on a San Diego home.
- Taking over the seller’s loan instead: see preapproval for an assumable mortgage.
Questions buyers ask about pre-approval
Is a pre-approval a guarantee that I will get the loan?
No. It is a lender’s statement that it is tentatively willing to lend up to a certain amount, based on assumptions. Final approval depends on the full application, the home and anything that changes before closing.
How long does a mortgage pre-approval last?
The letter shows its own date. The Consumer Financial Protection Bureau says a letter can carry an expiration date, typically 30 to 60 days out. Your lender’s date controls, so check it before each offer.
Does getting pre-approved hurt my credit?
A lender’s credit check is an inquiry, and it typically has a small negative effect on your scores. For scoring, FICO groups mortgage inquiries made within a short period into one: any 14 days under older score versions and any 45 days under the newest. Keeping your lender shopping inside 14 days covers both.
Does the seller see my financial documents?
Only a limited part. The seller’s side receives the letter and, when it is part of the offer, proof of funds with account numbers hidden. Pay stubs, tax returns, full statements and your Social Security number go only to the lender, through its secure system.
Can I use the same letter for a house and a condo?
Ask the lender first. Association dues count in the monthly housing cost you qualify on, and the condo project has to be eligible for the loan. Ask which project review applies. The lender can tell you whether the letter stands or needs updating.