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Conditional Mortgage Preapproval Letter

For many people, real estate is not only a critical component of their investment portfolio but also includes the place they call home.

For most [of us], securing a residential mortgage may be the key to making it happen. Whether it’s your primary residence, a second home, or another type of property, choosing a lending source that’s appropriate for your goals and longer term financial strategy can be critical.

Source: 2015 NAR Investment and Vacation Home Buyers Survey

A Conditional Preapproval

Buyers who wish to be more fully prepared may seek conditional preapproval for financing before they begin their real estate search. In competitive housing markets, securing preapproval for a loan may be common practice for participating in the home buying process.

This may be a critical step that not only gives house hunters a clear idea of their budget, but it also may potentially provide an advantage in a competitive bidding environment against those who haven’t been preapproved. When assessing bids, a conditional preapproval may signify that a buyer is firmly committed and has a lender lined up—all positive attributes from a seller’s perspective.

The Conditional Preapproval Process and What May Be Required

Once you’ve contacted your Financial Advisor or lender, applying for a mortgage preapproval—which is typically free—may include these steps. Please note that the processes and standards for determining whether or not to grant a mortgage pre-approval letter varies by lender.

  1. Complete preapproval application
  2. Provide the necessary income and asset information. While requirements vary by lender, they may include:
    • Social security number in order to obtain credit reports.
    • Documentation and verification of income, such as W-2s, pay stubs, and income tax returns for the past two years. Self-employed borrowers may need to provide additional paperwork.
    • Documentation and verification of assets, such as bank and investment statements./li>
  3. If any funds for the down payment will be coming from family or friends, you may need to include a gift letter to prove that source isn’t a loan.
  4. Based on an evaluation of the documentation, the lender will then provide you with a conditional letter of preapproval specifying a loan amount, which can be included in the property application packet.

Please note that the processes and standards for determining whether or not to grant a mortgage pre-approval letter varies by lender.

If you obtain a conditional preapproval letter, you may proceed with the process of finding a property, making an offer and finalizing your financing with your lender.

While a conditional preapproval is not a guarantee of a loan, it may help provide information that indicates borrowing limits and home affordability.

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