Contrary to popular belief: Pre-approval letters don’t come with a red-stamped “Approved” on it.
Pre-approval for a mortgage gives you a stronger position when it’s time to negotiate purchase price of a home. A pre-approval letter shows that you’re serious about buying.
The letter tells you the maximum amount of money the lender is willing to give you based on your income and credit report. It’s good to know what your new home’s maximum price can be. You don’t want to shop for houses above the price that you’re pre-approved for unless you have a significant stash of cash saved away.
Don’t mistake a pre-approval letter for a pre-qualification letter. A pre-qualification letter doesn’t contain an in-depth look into your income or credit report. It’s a general estimation. A pre-qualification letter doesn’t hold any water when negotiating a home’s purchase price since it’s less formal than a pre-approval letter.
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