Pre-Approval Letter or Proof of Funds: Why Sellers Ask Before Showings

A pre-approval letter is a lender’s written statement that it is willing to lend you up to a certain amount, based on the financial information it has reviewed. If you are paying cash, the equivalent is proof of funds: a verifiable letter from your bank or financial institution stating that the funds are available to complete the purchase.

How does a pre-approval letter help your agent?

A pre-approval letter tells me how much you are qualified to borrow, so the homes we tour are homes you can actually buy. Without it, we are working from an estimate, and it is easy to spend weekends looking at houses above the range a lender will approve.

The letter also tells me what type of loan you are using. Conventional, FHA, VA and USDA loans each come with their own requirements, and some affect which homes and which contract terms fit your purchase. Knowing that at the start lets me set up your search and your offers correctly.

Why do sellers ask for proof of financing before showings?

Every showing means a seller opens their home to people they do not know, often with little notice and while they are still living there. A pre-approval letter or proof of funds shows the seller that the people coming through are qualified to purchase the home.

Many sellers I work with now ask for this before they approve a showing, and some listings state it in the showing instructions. When a request comes in, having your letter ready means the showing can be confirmed without delay.

Is financing part of the purchase contract?

Yes. The standard purchase contract used by REALTOR® Alliance of Greater Cincinnati members includes the buyer’s financing information. When you write an offer, how you will pay for the home is part of the contract the seller reviews, so the details in your pre-approval letter carry straight into your offer.

Having the letter before you tour means you are ready to write an offer the day you find the right home, instead of waiting on a lender while another buyer moves ahead. Your earnest money deposit is the other piece of the offer worth planning for in advance.

What is the difference between pre-qualification and pre-approval?

The Consumer Financial Protection Bureau notes that lenders use the terms “prequalification” and “preapproval” differently. Some lenders issue a prequalification based on information you report and a preapproval based on information they have verified, but the terms are not used the same way everywhere.

The CFPB also notes that neither letter is a guaranteed loan offer. Your loan still depends on the property, the appraisal and final underwriting. Ask your lender what it reviewed before issuing your letter, and keep your finances steady until closing.

How do you get a pre-approval letter?

• Choose a lender — a bank, credit union or mortgage company. You can talk with more than one.
• Provide your documents — lenders typically ask for proof of income, recent bank statements and permission to review your credit.
• Ask about the letter itself — how long it is valid, and whether the lender can issue an updated letter for the exact price of a home you offer on.
• Paying cash? — ask your bank or financial institution for a verifiable letter stating the funds are available to purchase. A screenshot or account statement alone is not the same thing.

The CFPB suggests getting preapproved early, before you are deep into your search, so there is time to address any credit issues it turns up. My buyer’s guide from pre-approval to closing walks through the full purchase, and How Long Does It Take to Close on a House in Greater Cincinnati? covers what happens after your offer is accepted.