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financing Madison HomesWhen financing Madison homes it is not uncommon to find some confusion around what a prequalification letter is as opposed to a preapproval letter. This is in part due to banks developing hybrid letters that are not quite either of these any more. For example you might get something from the bank that says you are “conditionally approved” and that “final approval” is subject to your submitting additional documentation which must be verified. Let’s see if we can shed some common sense light on financing Madison homes.

 

Prequalification is the First Step toward Financing Madison Homes

The first step in financing Madison homes or homes anywhere in WI is getting prequalified. When you get prequalified you  typically tell the bank what you make, what you owe in terms of installment debt (car payments, credit card debt, etc.) what your savings account balance is, and other things they may ask. From that they make a determination if you would likely qualify for a mortgage in your quest for financing your new home.

Prequalification is kind of a “dry run” for the mortgage application process. And, provided everything you have told them is pretty accurate, it provides you with some comfort that you will meet the basic requirements for financing Madison homes.

The bank may give you a Prequalification Letter saying that you appear to be “prequalified” for a mortgage based on information you provided but is yet to be verified. This is often referred to as a “comfort letter” in that it gives the seller some “comfort” that you have begun the financing process and the initial impression the bank has is you appear to be qualified to get a mortgage. Some financial institutions no longer provide “prequal” letters, so be sure to ask what you are getting.

Preapproval is a more Formidable StatementGetting your mortgage

The next step in financing your home is providing the bank with all of the documentation they request, which may include tax forms, paycheck stubs, bank statements, account statements and filling out the application form either in person or online. They will also order a credit check and will go about the process of verifying your information.

When the bank is done with its verifications they will tell you specifically how much they will be willing to finance. Again they will issue you a letter, this time called a Preapproval Letter. But because they have verified your data, this letter carries significantly more weight than a prequalification letter. Actually all that remains in most cases is the appraisal and a copy of your accepted Offer to Purchase

Once you find a home you like, you may be able to close much more quickly because most of the work to approve your mortgage has already been completed. And, especially important, an offer delivered with your preapproval letter is a stronger offer than one that is not. In fact, a very common term in a counter offer from the sellers is the demand for your preapproval letter within a very short period of time…like three days.

Loan Commitment: The Final Piece of the Puzzle

If you have a finance contingency in your offer to purchase, the Commitment Letter is what you use to remove the contingency. The bank will give you a letter with the word “commitment” in the title. This letter will indicate their commitment to give you a loan for a specific amount of money at a specific interest rate and specific terms to purchase the specific property for which you have an accepted offer.

However, before you give this letter to your agent to forward to the seller, you will want to write on the letter itself something like, “Ok to deliver to seller.” Then you will want to sign and date the letter so there is no question that you have: (1) Actually seen the letter; and (2) Have given your agent permission to send the letter to your seller. The reason this is so important is because once this letter is delivered it removes your financing contingency, which is often the last contingency you have.

Nelson & Associates Realtors will be Happy to Help You with Your Real Estate Needs

If you have questions about real estate, financing Madison homes or would like to get started finding the home of your dreams,  contact us and we can go to work for you right away.

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