Does a mortgage pre-approval letter guarantee financing?

No. Pre-approval letters are known in the real estate industry as “hand-holding” letters. They say that the borrower has taken the time to work with a lender and that, in general terms, the borrower can afford to borrow a certain amount. In the best case, a pre-approval letter should be seen as an important negotiating tool.

However, pre-approval letters by themselves do not guarantee financing. The lender must also consider the value of the property; whether the property has good, marketable, and insurable title; whether the property is termite-free, and other factors. The result is that a pre-approval letter should not be regarded as a final loan commitment.

In addition, virtually all pre-approval letters contain “out” clauses for lenders. The interest rate is guaranteed — but not the number of points. The offer to finance is good — but not if market conditions change. And market conditions, of course, are always changing.

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