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When buying a house in the United States, most people will choose to take out a loan. However, for first-time homebuyers, it may be confusing because they don’t know how much money they can borrow from the bank, nor do they know what price range of house they can afford.
Therefore, an important step in taking out a loan to buy a house is to apply for a bank pre-approval letter.
1. What is a Loan Pre-approval Letter?
The Pre-approval Letter is actually a certificate of the buyer's loan ability. The bank will issue a written certificate based on the applicant's credit score, income, debt, deposits and other financial conditions to prove how much loan the bank is willing to provide to the borrower.
2. The Benefits of Having a Loan Pre-approval Letter
For buyers, knowing how much house they can afford and having a clear goal will help them to be more targeted when looking for houses, rather than flying around aimlessly, thus avoiding unnecessary waste of time and energy. This can also increase the competitiveness of the offer.
For sellers: they often think that buyers who provide a Pre-approval Letter are more sincere and reliable, and decide whether to accept the offer by confirming the buyer's purchasing power. In California, all loan offers need to be accompanied by a Pre-approval Letter. If there is no Pre-approval Letter, the seller will basically not consider the offer, considering that there is financial risk and lack of sincerity.
For real estate agents: by clarifying the client's housing purchase funds, they can better recommend houses that meet the price range based on personal circumstances.
3. What Materials Are Required for Application?
- Driver’s license/green card/H1B: confirm your identity
- Paystubs: 2-3 months of paystubs
- Bank Statement: A 2-3 month bank deposit slip to confirm the applicant's down payment ability
- W-2: To ensure a stable income
- Tax Return
- Property Tax/Rental Expense/HOA
4. Things to Note When Applying
1. Avoid applying for new credit cards/large spending.
When applying for a formal loan, the bank needs to check the credit history. If there is a new account, the bank needs to confirm the account information, thus delaying the loan approval. Similarly, if the applicant purchases large-value items, such as buying or renting a car, large home appliances and furniture, etc., which reduces the down payment and cash amount, it will also affect the loan approval.
2. Avoid changing jobs.
If the applicant changes his/her job after the Pre-approval, the bank will need to contact the new employer to confirm the employment relationship and collect 1-2 months' payroll when approving the loan, which will result in a delay in the review.
3. Avoid delayed repayments.
If there is a record of deferred payments on credit cards and other mortgages, it will affect the final loan review.
4. Avoid frequent access to credit reports.
Every time you check your credit record, it will leave a record, which will affect your credit score, which will also have an impact on the final loan.
Therefore, after obtaining the bank's Pre-approval Letter, it is best for the applicant to maintain a relatively good credit score and keep a clean account to avoid being rejected and the process being extended.
5. Validity Period of Loan Approval Letter
The validity period of the pre-approval letter varies from lender to lender. Generally speaking, it is valid for 60-90 days. So as long as you buy a house within the 60-90 days of the pre-approval, the same lender does not need to hard pull your credit record again.
If the validity period has expired, the lender will do another hard pull and the applicant will need to renew the Pre-approval letter.
However, there may be some difference between the pre-approved loan amount and the final amount, which depends on changes in market interest rates, whether the applicant's financial situation has changed, etc.
Taking into account factors such as location advantages, living functions, and the object's condition, choosing a value-preserving property not only has the potential for appreciation, but also provides you with greater flexibility when changing your residence in the future.
