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If you’re trying to buy a house in a competitive market, you’d be wise to look for any advantage you can find to set your offer apart from the competition.
A verified approval letter could be that competitive edge. We’ll explain what they are, how they can benefit you, why they’re appealing to sellers and what you need to do to get one.
What Is a Verified Approval Letter?
Technically, a verified approval letter is a type of preapproval letter (also known as a prequalification letter) but it’s a stronger version because a mortgage underwriter has reviewed and verified your finances.
The mortgage underwriter will verify factors such as your credit score, debt-to-income (DTI) ratio and your savings before signing off on a verified approval letter.
Verified approval letters carry more weight because mortgage underwriters are ultimately the ones who approve or deny mortgage applications, and this is a figurative “green light” from the decision maker.
They’ll take another look when you officially apply for your mortgage, but assuming nothing changes with regard to your finances, you’ll be approved.
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Verified approval letter vs. prequalification letter
You can get a standard mortgage prequalification letter without having a mortgage underwriter verify your finances. These letters signal that a mortgage lender is likely to approve the mortgage based on your credit score, but an underwriter hasn’t reviewed any documentation.
When distinguishing between the two, the key question to ask is: has an underwriter verified your financial information? If the answer is yes, you can get a verified approval letter. If the answer is no, you’re looking at a standard prequalification letter.
Advantages of a Verified Approval Letter
There are several advantages for prospective home buyers that come with getting a verified approval letter.
After the underwriter reviews your key financial metrics, you should have confidence in how much house you can afford as well as a good idea of what your monthly payment will look like.
After receiving your verified approval letter, you should also ask your mortgage lender to talk you through your monthly payment and closing costs so that you can have as accurate a picture as you can before submitting an offer.
More attractive to sellers
Cash offers are appealing to sellers because they remove concerns about financing falling through after accepting an offer. No seller wants to have to relist their home after it becomes contingent on the multiple listing services (MLS) and aggregate listing websites.
A verified approval letter isn’t cash, but it’s as close as you can get to a guarantee from a lender. It gives sellers a lot of confidence in your financing, much more so than just a prequalification letter. Seller confidence in your financing could set your offer apart.
Because the mortgage underwriter has already reviewed your finances, they should already have all of the documentation and information they need regarding the factors involving you.
There are some additional steps in the closing process, like a home appraisal and a home inspection, but much of the difficult legwork is already done. This should streamline the process and allow you to close faster.
How To Get a Verified Approval Letter
If you’re interested in securing a verified approval letter to give yourself a competitive edge, here’s what you’ll need to do.
- Choose a lender: First, you need to decide what lender you’d like to use. Take the time to ask the mortgage lenders questions and make sure to talk to multiple lenders before coming to a decision.
- Prepare your documentation: The mortgage underwriter will need to verify your finances, which means looking at documentation. You should have bank statements, tax returns, W-2s and pay stubs ready upon request.
- Fill out the application: Once you’ve chosen a lender and prepared your documentation, you need to fill out an application for preapproval. Explain to your lender that you’re interested in a verified approval letter and ask if there are any additional steps you need to take. If the underwriter asks for more information, be responsive and supply whatever they need as quickly as you can.
Final Thoughts on Verified Approval Letters
Purchasing a home can be a competitive process. Getting a verified approval letter can set you apart, and you’ll need to eventually go through underwriting anyway to get a mortgage approved. Think of it as completing a task before the deadline. Since you’ll need to do it either way, you may as well get benefits like strengthening your offer and streamlining the closing process.
The Short Version
- A verified approval letter is technically a preapproval letter, but because the borrower’s finances have been reviewed and verified by a mortgage underwriter, it’s stronger
- The advantages of getting a verified approval letter include having a defined budget, making your offer more appealing to sellers and streamlining the closing process
- To get a verified approval letter, the lender will need to run a hard credit check. They’ll also need documentation like your W-2s, tax returns, bank statements and pay stubs