Aloha, this is George Krischke with Honolulu HI 5.
Today, we’re going to talk about the difference between pre-approval versus pre-qualification. We’re going to talk a little bit about proof of funds. Now, when the real estate market gets real hot, sometimes you have a situation where multiple buyers are interested in the same property. You may be able to improve your chances to get your offer accepted by including a pre-approval letter with your offer.
Let’s talk about pre-approval. What does a pre-approval letter show? It shows the seller, 1.) that the lending institution has reviewed your finances; that includes your income, your employment history, your liabilities, and your assets. 2.) the lending institution has determined that you are qualified to obtain a mortgage loan up to a certain amount. 3.) and this is important, your credit score has been verified, and is sufficient to obtain the type of loan you are applying for.
These are three important factors and they could possibly give your offer an edge over other offers received. They could also give the seller a degree of assurance that your loan should get funded. Now, how about a pre-qualification?
A pre-qualification will do the same thing, except what’s missing is the important credit check. So, a pre-approval includes the credit check and a pre-qualification does not. So, we strongly recommend to always attach a pre-approval letter of a pre-qualification letter, when submitting your offer. It is a good idea to have the dollar amount on the pre-approval letter match the dollar amount on your offer that you submit.
Now, let’s talk about proof of funds. When you have a cash transaction, when you purchase real estate without a loan, we strongly recommend to attach a ‘proof of funds’ letter with your offer. Now, that could be done in two different ways. It could be either, 1.) a bank statement showing your name, the name of the financial institution, and your account balance. Just make sure to cross out your account number, to be safe. Instead of a bank statement, it could be, 2.) a bank letter on the bank’s stationery, indicating that you are in good standing with the bank, and that you have the funds to make the purchase up to a certain amount. That is proof of funds. Now, be prepared if you don’t provide the proof of funds with your offer, very often a seller might counter you and require it. It’s always good to be proactive and attach it with the first offer that you submit. That’s it for today.
Thanks for watching. ~Aloha.