Online Mortgage Pre-Approval Letter: All You Need to Know

Lingering for the online mortgage pre-approval letter seems like waiting forever. 

People are eager to receive it to make the most of it as soon as possible. 

It helps them achieve their desired goals with real-estate sellers who respond positively to buyers having a mortgage pre-approval letter. 

Getting pre-approved has become a buzzword for borrowers who are always looking for ways to enhance their chances to get a mortgage. 

A pre-approval letter represents that a lender is agreed to lend a borrower a specified amount of money. 

However, it does not guarantee that the buyer will get the mortgage he has gotten approved for. 

The reason is that a change in your financial status would impact your credibility and eligibility.

Components of a Pre-Approval Letter

The fancy name of an online mortgage pre-approval letter attracts many borrowers, and they are interested in getting one without even knowing about what it is composed of. 

Once you have decided to get pre-approved, it is better to know what it contains for you and how it might improve your situation. 

Here is a list of components of a pre-approval letter with a brief description.

  • Loan categorization: a pre-approval letter mentions the category of loan you have applied for and gotten approval for. It includes USDA, VA, FHA, conventional, Jumbo, and other types of mortgages available for borrowers.
  • Loan amount: it is by far the most important and obvious thing that must be mentioned in a mortgage pre-approval letter. It entails the limit of the amount you have gotten approved to get a loan for. 
  • Loan type: the loan type specifies the type of mortgage based on repayment term and rate. It categorizes the mortgage into either adjustable-rate mortgages or fixed-rate mortgages. It also specifies the length of the mortgage.
  • Interest rate: the interest rate mentioned on the pre-approval letter is the qualified interest rate that the lender is agreed to charge you. 
  • Validity period: the period for which the pre-approval will remain valid is also mentioned in the letter. It usually ranges between 30-60 days. The expiry date is an important factor in shaping the borrowing policy for your mortgage.
  • Cost: the cost of the loan represents the maximum purchasing price that the borrower will have to pay, including the amount of loan and the corresponding down payment.  

Never mistake your pre-approval letter for the mortgage offer letter. It is just an answer to the question of whether a lender will likely offer you a mortgage or not. 

Also, the components of the letter are prepared using your current financial position. 

It would be a foolish act to use it to project your plans in the future and build conspiracy theories about past experiences.

The world we are living in today is highly dynamic, and you cannot base your important decisions, such as financial decisions, on outdated information.

Key Benefits

There are some exciting benefits of getting a pre-approval letter.

  • Getting a pre-approval in the first place increases your chances of successfully qualifying for a mortgage of your choice. 
  • Lenders indeed prefer the pre-approved borrowers. They know that a lender has already verified the buyer’s credibility, and thus they are more likely to grant a mortgage.
  • Getting an online mortgage pre-approval letter saves borrowers from the hustle of visiting the lenders’ offices. They can get the complete process done in the comfort of their homes. 


Drawbacks of the Online Mortgage Pre-Approval Letter

Besides the compelling benefits, there are also some downsides to the idea of an online mortgage pre-approval letter. 

  • Getting pre-approved for a mortgage might sound fancy, but it is more complex than it seems. The complexity of the process refrains borrowers from getting their hands into it until they have sufficient knowledge about it. 
  • It is a quite lengthy process that ends up consuming a lot of time for the applicant. He has to go through nearly the same process as applying for a mortgage. 
  • The documents required for verifying a borrower for pre-approval include his credit score report. The verification of your credit report might affect your credit score, making it difficult for you to qualify for a loan in the future. 

How It Works

You might be curious to know how the process for an online mortgage pre-approval letter goes. 

It usually takes a few business days to get you the response. However, the application matters a lot in determining the time for results. 

A complete application might get a quicker response, while an application with incomplete or insufficient documentation remains ignored. 

Here is a brief description of how the mortgage pre-approval process takes place.

  • Step 1

The first step is to complete the application and submit the required documents to the lender you are planning to get a mortgage. 

These documents consist of financial information about you that is used for the verification of the borrower. 

The documents may include proof of your source of income, accounting statements, financial instruments, etc. 

Since it is a mandatory requirement by every lender, you better keep it ready before applying.

  • Step 2

Once you submit the required documents, the lender does a credit check of the borrower. 

It involves him going through borrowers’ credit score report that plays a crucial role in determining whether a person should qualify for a mortgage or not. 

To prevent your credit score from getting affected by this credit check, it is better to read it beforehand and remove any flaws in it. 

  • Step 3

The third step is usually the final step, where the lender finalizes his decision regarding whether or not to approve a borrower. 

He bases his decision o your financial status and credibility in terms of your credit score. 

In case of approval, a letter is issued, which nowadays is usually an online mortgage pre-approval letter. 

Tips to Follow

Although there is no shortcut or a secret trick to getting through the pre-approval process with your desired results, there are still some tips shared by experts that might ease your journey to get an online mortgage pre-approval letter. 

Following these tips will help you plan and execute your strategy effectively.

  • Determine the Right Time

Time plays a crucial role in the pre-approval process for the borrowers. You must know when is the ideal time to apply for getting pre-approved. 

According to experts, you should apply when you are completely ready to launch your search for your desired house. 

The determination of the right is important because the pre-approval letter might have an expiration date.

The expiration period usually ranges between one to two months, and therefore the borrower has a limited time to actualize the benefit of a pre-approval letter. 

If he is unable to find a home for himself within the defined expiration period, the whole struggle might go into vain. 

Therefore, it is important to be fully prepared before heading to applying for pre-approval.

  • Prepare for Varied Requirements

With the variation in lenders, you might face minor or major variations in their defined criteria and requirements for pre-approval. 

It is normal, and a borrower must be aware of it before even applying. If you have prepared for a specific set of requirements, you might end up finding yourself in hot waters. 

Do thorough research and collect enough information for yourself. You must know the potential requirements that lenders usually ask for when verifying a pre-approval application. 

This will allow you to be adequately prepared and open more options for you. You must know about lenders’ requirements: the cost, validity period, renewal cost, and the necessary documentary requirements. 

  • Switching Lender

Many people have this misconception that you are bound to borrow a mortgage from the lender who has issued an online mortgage pre-approval letter to you. 

This leads them to ignore many potential options otherwise at their disposal. 

You must know that you are allowed to choose a lender freely for pre-approval and borrowing a mortgage. 

You must avail yourself of the opportunity to check out and compare available borrowing options for you.

The pre-approval letter will help you get better offers once you have chosen your dream home. 

After shopping around and comparing multiple offers, you will be more clear on deciding which offer is the most suitable for your financial needs.

Factors Determining Pre-Approval

Applying for an online mortgage pre-approval letter is comparatively easier when you are just following a guideline. 

However, you must also know the logic behind every step to make reasonable decisions. 

Here are some of the factors affecting the decision regarding approving your application that you must know.

  • Income and Employment

The income level of an individual and his employment status are the most crucial factors having a significant impact on pre-approval. 

A person having a low-income level will be approved for a loan according to his income since it represents the potential resources he has to pay off his debts. 

Similarly, if you keep switching employments, the lender might consider you as a person having an inconsistent attitude.

A firm financial background will strengthen your position as a borrower.

  • Credit score or credit history

A credit score or credit history allows lenders to determine whether or not the borrower is credible enough to pay back the borrowed money or not. 

A high credit score offers better and more chances as compared to a low credit score leading to a declined application.

  • DTI Ratio

DTI ratio represents the Debt to Income ratio determining how much debts are covered by the monthly income and how much are in a risky position. 

The requirement for a DTI ratio varies with the type of mortgage, its repayment term, and the payment term. 

However, as a general idea, you must have the lowest possible DTI ratio to grab the best opportunities. 

A higher ratio will make you appear a risky investment for lending money since the probability of repayment will be difficult. 

How to Deal with Denial?

While applying for an online mortgage pre-approval letter, you must be prepared for both responses. 

It is guaranteed that you will readily get approval. Your request might be denied someday, and you should know how to deal with it. 

Here is what you can do to turn this rejection into an opportunity for yourself.

  • Know the reasons

The foremost thing you should be concerned about is why your request was denied. 

There must be some reason, and you have to find it out. It will help you know the area that needs improvement, and that has the potential to turn a denial into an approval.

  • Get in touch with the lender

People who get discouraged after their request is declined and back off make the biggest mistake. 

Even if your request was not accepted, you have got a chance to talk to the lender and discuss with him the causes of denial. 

This concern exhibits a positive attitude from your side that might compel the lender to give you some extra cents of knowledge and an insight into the tips and tricks to win approval. 

  • Get your credit report

Ask your lender to show you the credit score report that he considered while analyzing your request. 

Usually, it is easy to get a copy of your credit score report without any charges. 

This report will help you identify the gaps and deficiencies in your credit score that might have caused the denial in request.

  • Rectify your mistakes

After knowing the deficiencies in your request from multiple aspects, the final step is to rectify those mistakes with extreme care. 

This time you must be careful in trying your best to make your request flawless and attractive for the lender. 

Putting All Together

Applying for an online mortgage pre-approval letter is beneficial only when the borrower has a clear plan and is ready to execute it. 

There is no use in carrying out this long and complex process if you are not ready to maximize its benefit for yourself. 

You must prepare yourself before applying and ensure that you put forward a flawless application that ensures the desired response for you. 

Even if you do not get approved for the first time, take it as an opportunity to learn and improve. 

Keep necessary information in your mind, analyze your position, set your financial objectives, and execute a seamless strategy to get your desired results.

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