An example of a preapproval letter is a document from a mortgage lender informing a seller that a potential buyer is approved for a mortgage up to a certain amount. The letter will typically include how much money the mortgage lender is qualifying a potential buyer to borrow. According to the National Association of Realtors, this figure can be adjusted depending on the applicant’s credit history, expenses or income.
Broker Outpost states that a preapproval letter will also sometimes include a date that the offer may expire. In addition, the letter should describe the terms and conditions of the loan program that the potential buyer has been approved for. The information provided in the letter should also usually include the interest rates and contact information for the lender.
Getting qualified for a mortgage loan is typically a three-step process, starting with prequalification, moving to preapproval and ending with the approval. A prequalification letter indicates that a lender is willing to further investigate a potential buyer’s financial situation and confirm the accuracy of the information provided.
Preapproval letters carry more weight than prequalification letters. A potential buyer with a preapproval letter can expedite the timeframe from making an offer to closing the sale. According to Fox Business, this is because a buyer who has been preapproved can make a more promising offer, while others who are yet to be preapproved do not yet have a solid offer.