Flimsy Pre Approval Letters A pre approval letter is often your best weapon in getting the home that you want. What is a pre-approval letter? A letter from your mortgage broker that has pre-qualified you for a specific amount. This can expediate the buyer accepting your offer as you are already pre-qualified. Getting pre-approved is an important step in home shopping. It's step however that many home shoppers are not taking seriously.

"More than half of the participants in a nationally representative statistical sample of realty agents identified unreliable or bogus preapproval letters as a key cause of breakdowns in transactions."

What's the reason for these flimsy pre-approval letters?

"That's because larger numbers of buyers either have dings on their credit files or are using low-documentation and no-documentation loans when they purchase houses. Low- and no-document loans permit borrowers to simply state their incomes and assets with little or no verification by the lender."

The easing of credit standards and more creative financing are the main reasons. So when getting a pre-approval letter make sure to do the following:

"Sharon Wilson, executive vice president of Combank Mortgage Co. in Homestead, Fla., said pre-approval letters can be valuable, but they have to meet basic standards. Any valid pre-approval letter must be explicit about its limitations and conditions. It must disclose, for example, that the loan amount offered is subject to a full appraisal, formal underwriting and receipt of an acceptable contract. It should state that the interest rate quoted is not locked and could change. No pre-approval letters are worth looking at, Wilson added, if the lending institution has not thoroughly checked credit files, income and cash on hand."

Don't open any new credit lines. Don't change jobs. Don't go on spending spree.  ¶ Flimsy Pre Approval Letters