Do International Buyers Need a Pre-Approval Letter in the U.S.?
By Milo • 7/22/2021
Having a pre-approval letter is not technically a necessity, as it is possible to purchase and close on a U.S. home without one. However, having a pre-approval letter to prove your financial leverage can introduce many benefits to the home buying experience.
In this blog post, we will outline what exactly a pre-approval letter is, as well as the benefits that international buyers can expect when they have one while buying U.S. investment properties.
What is a Pre-Approval Letter?
A pre-approval letter is an official estimate for credit prepared by a mortgage lender. Pre-approval is typically the first step that an interested buyer takes when they are trying to secure a mortgage loan to purchase their homes.
The buyer submits their initial application to a mortgage lender and the lender reviews their qualifications based on the information that was provided. The pre-approval letter projects the amount of money that the lender would be willing to offer a borrower according to the information provided.
At this stage, the lender reviews the financial information and runs a quick credit check. However, the lender does not check the accuracy of the information claimed by the borrower on their application.
It’s important for international clients seeking mortgage pre-approvals to ensure that the information they are providing is current and reflects their situation. Otherwise, the pre-approval will not be an accurate representation of their creditworthiness and borrowing potential.
Essentially, a pre-approval letter tells the buyer how much money they can get to buy their home if they take out a mortgage with that lender. Buyers can use this to shop for the best rates and terms on their potential loan, helping them identify the best lender for them.
Milo’s Pre-Approval Process
With Milo, pre-approval reviews the information submitted by the borrower and writes up a hypothetical offer to outline what a borrower with the same or similar prospects can expect. That means the annual income, income streams, and account balances you claim are not fact-checked.
The information is confirmed when clients move onto their actual loan applications. At this stage of the process, Milo does verify the financial information submitted. The pre-approval stage of the loan happens when a borrower fills out the complete mortgage application. The lender takes this information and reviews it to ensure everything is factual, in addition to performing a credit check.
If the lender pre-approves you, they send a letter that offers a specific loan amount. Typically, pre-approval offers are good for ninety days after they’ve been issued. After that duration, borrowers may be required to resubmit their information to determine if anything has changed that impacts their borrowing status.
Pre-approval gives borrowers the opportunity to engage with their lenders and explore loan options. This step provides greater insight into the lending process.
How Pre-Approval Works in the U.S.
International clients should be aware that a mortgage pre-approval does not guarantee their financing. Neither of these steps in the mortgage process is the official approval, nor do they lock in any of the rates and terms you were presented during the preliminary application process. They are offers, not commitments, from your lender.
The way pre-approval works in the U.S. is that borrowers use this to gauge their borrowing potential with a lender. Borrowers need to take the next step, which is actually applying for their loan. At this stage, the offer they are given is their pre-approval letter. From there, they can either deny or accept the offer. If they accept, their official underwriting process begins to determine the full scope of their loan.
The amount of time it takes to move from mortgage pre-qualification to pre-approval to actually obtaining your loan varies based on the lender you work with. For example, most traditional lenders take 90 days to deliver the pre-approval letter. On the other hand, a digital lender like Milo delivers a pre-approval letter in five minutes.
Three Benefits of Having a Pre-Approval Letter in Hand When Buying a U.S. Home
While pre-approval may not lock in your loan, it is still an important step in the lending process. International buyers can use their pre-qualification letters as guides to help them strategically approach their mortgage loans.
Here are three benefits that international buyers gain when they have a mortgage pre-qualification letter from their lender.
#1. Stand Out in a Hot Sellers Market
In the United States, the real estate market in 2020 and 2021 has been experiencing high demand and comparatively low inventories. This has shaped a seller’s market, meaning that the seller has the upper hand in the deal. In these hot markets, it’s typical that multiple buyers place offers on the same home.
#2. Pre-Qualification Show Sellers You are Serious
Pre-qualification letters can help show a seller that you are a serious buyer. A pre-qualification buyer appears farther along with the buying process, which means that they are more clear about their budget. This demonstrates a financially aware buyer who is more likely to follow through with the deal.
#3. Helps You Understand Your Price Range
Finally, access to a pre-qualification letter can help buyers clearly understand their price range for buying a home. International clients can use the principal amount from their pre-qualification letter to set their purchasing price. This can be used to guide the market search process and then to establish a fair and competitive offer when you find a home you’re interested in.
For many reasons, pre-qualification letters streamline the home buying experience for international buyers. With Milo, 88% of borrowers got approved for their actual loan. If you’re ready to get pre-approved on your mortgage with Milo, click here to get started.