Pre Approval Letter for Home Loan: A Sample Template and Guide

Getting pre-approved for a home loan is an essential first step for homebuyers. A pre-approval letter from a lender indicates you have been vetted and can likely qualify for a mortgage of a specific amount. This gives buyers more negotiation power and shows sellers they are serious and financially ready to purchase. In this comprehensive guide, we’ll explore what a pre-approval letter is, provide a sample template you can use, and outline the process for how to go about obtaining one.

What is a Pre Approval Letter?

A pre-approval letter is a document issued by a mortgage lender certifying that a borrower qualifies for a home loan up to a stated amount Pre-approvals are based on a preliminary review of your finances, including income, debts, assets and credit history

Having a pre-approval letter in hand gives buyers a significant advantage over other potential purchasers. It indicates you are a serious buyer who has been vetted by a lender and can move quickly to close the deal. Many sellers will not even consider an offer without a pre-approval letter.

Pre Approval Letter Sample and Template

Below is a sample pre-approval letter that borrowers may receive from a lender

[Date]

[Borrower Name]
[Borrower Address]

Dear [Borrower]:

Congratulations, you have been pre-approved for a mortgage loan with [Lender Name]! Based on a preliminary review of the financial information you provided, you qualify for the following:

• Loan Amount: Up to $[200,000]
• Loan Program: Conventional 30-Year Fixed
• Interest Rate: [5.5]%
• Down Payment Required: [20]%

This pre-approval letter is valid through [Expiration Date] as long as your financial circumstances remain the same. Please note this is not a mortgage commitment, and the interest rate and terms would be subject to change depending on market conditions at the time of application.

Sincerely,

[Loan Officer Name]
[Lender Name]

How to Get Pre Approved for a Mortgage

Follow these key steps to obtain a pre-approval letter:

1. Check and Improve Your Credit Score

Lenders will check your credit, so boost your score above 700 if possible before applying. Pay down debts, dispute errors, and don’t take on new credit.

2. Gather Required Financial Documentation

You’ll need pay stubs, W-2s, tax returns, bank statements and investment portfolio values to verify income and assets.

3. Choose a Reputable Lender

Shop lenders like banks, credit unions, and online mortgage companies. Get rate quotes for comparison.

4. Complete a Pre-Approval Application

Fill out a full application with your personal information, income, debts, and home purchase goals.

5. Get Pre-Approved!

It typically takes 24-72 hours to get a pre-approval letter. This confirms the loan amount and terms you qualify for.

Benefits of Getting Pre-Approved

Here are some key advantages of having a pre-approval letter for your home search:

• Shows sellers you’re serious – Pre-approval proves you’re ready to purchase. Sellers may choose your offer over competing buyers without letters.

• Gives negotiation power – Your offer looks stronger with a letter, allowing you to potentially negotiate better terms.

• Locks in current rates – Interest rates rise over time, so locking in through pre-approval saves money.

• Speeds up the process – Much of the legwork lenders need is done upfront, accelerating final approval.

• Finds issues early – If any problems come up, you have time to correct them before finding a home.

• Compares lender offers – Shop lenders and compare pre-approvals to find the best mortgage rates and terms.

While not guaranteed, a pre-approval letter puts buyers in a favorable position to be able to act quickly when the right home listing comes along.

Pre Approval vs. Pre Qualification

Pre-approval and pre-qualification are sometimes used interchangeably, but they are different:

Pre-Approval

• Lender verifies income, assets, credit & debts

• Completed full mortgage application

• Strongly indicates borrower is qualified

• Requires documentation

Pre-Qualification

• Initial estimate based on limited questions

• No verification of applicant details

• Not a firm approval

• Faster and easier to obtain

Pre-approvals carry much more weight due to the lender vetting the buyer’s financial details. Most sellers require pre-approval letters over pre-qualification.

Is a Pre Approval Binding?

Importantly, a pre-approval letter is not the same as a final loan approval or commitment. Lenders reserve the right to revoke pre-approvals if new information comes to light, such as a job loss or major credit event.

You are also not obligated to obtain your mortgage with the issuing lender. You can shop around for the best rates and terms once you’re ready to move forward. Think of a pre-approval as an initial relationship rather than a binding commitment.

Pre Approval Letter Tips

• Shop lenders for the best pre-approval terms and ask about their specific requirements.

• Aim for a maximum pre-approval amount above the list price so you can negotiate if needed.

• Be sure to provide lenders with accurate information or it could jeopardize final approval.

• Get pre-approved 1-2 months before you plan to start putting in offers. The letter is typically valid for 60 days.

• You can use a pre-approval from one lender while ultimately choosing a different lender for your mortgage.

Ready to Buy a Home? Get Pre-Approved!

In the competitive housing market, buyers need every advantage they can get. Obtaining a pre-approval letter from a reputable lender should be one of the first steps when considering a home purchase. Use the sample letter and guidelines above to understand the pre-approval process and maximize your buying power. With strong pre-approval in place, you’ll be in a great position to win over sellers and lock in the keys to your dream home.