6b. The importance of pre-qualification letters
6c. RESPA consumer protection
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Buyers must have a prequalification letter before their real estate agent places a bid on their behalf if they plan to use some form of mortgage financing. For those buyers who intent to purchase HUD homes without financing, a Proof of Funds certification is required instead. Since most buyers will require some financing for the purchase of the home, the prequalification letter is of utmost importance.
The prequalification letter must meet a specific set of requirements when submitted with a bid. The prequalification letter must meet the following requirements:
- Every contract package must include a prequalification letter and an original letter is required.
- Letters should be written on the official letterhead of the lender and they must include a signature. Contact information for the lender must be included as well, including telephone number, fax numbers and the lender’s mailing address.
- It is required that prequalification letters include the name of the buyer, type of financing, HUD case number, loan amount and property address.
- A statement that a credit bureau check has been completed and reviewed must be included in the prequalification letter. For those buyers planning to do cash transactions, brokers and agents must send a Proof of Funds letter with the contract package, which is used to verify the funds available for closing. Brokerage letterhead stationary must be used for written verification.
When requesting the prequalification letter, requesting a Good Faith Estimate of Closing costs allows buyers to see the breakdown of pre-paid expenses and closing costs due upon contract settlement. Any inspection fees must be paid at the time of service in most cases.
To expedite the processing of the prequalification letter and loan, buyers should provide as much documentation as possible. This documentation may include bank statements, pay stubs, income tax returns, employer contact information, photo ID, Social Security number and other information, which may vary by lender.