Congratulations! You received a pre-approval letter.

So what?

Most consumers – and some real estate agents – think a pre-approval letter from a bank guarantees them financing. No matter what the loan officer or mortgage broker tells you, the reality is that is far from the truth!

Let me be clear: a pre-approval letter is necessary. It is deemed an important measure of what a buyer is able to afford based on the information initially provided. It also shows your genuine interest to engage in a purchase transaction as well as the bank’s interest in providing you with financing – sellers wouldn’t dare consider an offer without a pre-approval.

But the harsh reality is that a pre-approval often provides “a false sense of security” because it does NOT guarantee you financing. (Florida Association of Realtors)

Despite the information you provide to your lender to obtain that pre-approval letter, there are a number of things that the lender will have to review in detail – er, scrutinize – in order to commit to you. During that “underwriting” process, the bank or lender will review all manner of things, including past, present and future conditions that might affect your ability to repay the loan.

A knowledgeable real estate professional is likely to sit with you to discuss this and advise you of potential red flags that may lurk in the shadows of your “financial landscape.” The most common red flags known to injure a deal are: deferred student loans, changes in employment, large purchases and transfer of funds.

Shopping for a house, risking your deposit and toying with your emotional stability is all fun and games until you receive a denial days before your anticipated closing. Don’t let that happen to you. Seek a knowledgeable real estate professional to educate you – to explain the difference between a pre-approval letter and a loan commitment – and to lead you in the right direction.