Why Do I Need A Pre-Approval Letter?

08.02.2012  |  category: Real_Estate  |  posted by: Joy Mengeringhausen

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checkboxA pre-approval letter is only necessary when financing, if you are paying cash the following does not apply.

Lots of things have changed when it comes to buying and selling real estate. While they may be a bit of an inconvenience, they are in place to protect everyone; the buyer, seller, agents and the lender. One of these changes is for the seller's agent to be certain the buyer qualifies for the loan before advising the seller to negotiate or accept - thus taking the property off the market. A pre-approval letter also let's your agent know in what price range to show homes, saving valuable time for everyone.

 There are two types of letters:  

  1. The pre-qualification letter takes about 15 minutes to complete. You can get this from online lenders, mortgage brokers or even from your bank's website in the way of a "short form" application. In this version you enter whatever you want on the lines, click submit and voila you have a pre-qualification letter that gives you a general idea of how much you "might" qualify for. This dollar amount will be followed by a slew of contingencies that basically say, as long as everything comes back clean once they do get around to verifying your information. This type of search is great for your own information, as an FYI so "you" know in what price range you should be looking at online but understand that the actual amount you will qualify for, could be more or less than the amount quoted. The information was not verified by a lender and in the end, It is a vague piece of paper that means very little to an agent or a seller hoping to sell their home to a qualified buyer. 
  2. The  pre-approval letter is a little more time consuming, it can take anywhere from three days to to two weeks to prepare so it isn't something that can be put off until the last minute. If you are financing, you will in the end have to go through this process so if you are serious about buying, there is no sense in waiitng.  The pre-approval letter is the result of a loan application. It is when the lender or mortgage broker collects full documentation from you in the way of pay stubs, tax returns, credit card bills etc. They run your credit score, research and verify all information is correct and have their underwriter approve your application for a said amount. This is the amount you truly qualify for and that the bank will lend to you unless you do something that would change your qualifying criteria, like go out and finance a new toy, get fired or change careers in the interim. Please note it is perfectly fine to change jobs as long as your new position is in the same field and paygrade, of course promotions are always very good. This type of pre approval will have the lender's name, underwriter's approval, address and telephone number of the bank or contact person and will not have any contingencies listed. If you are serious about buying property, it is the only kind you will have prepared prior to physically looking at homes.  

Why having a pre-approval letter can make all the difference when negotiating:

  • It is very common in today's market for a seller to receive several offers on their property. Common sense dictates that the seller will most likely accept the offer submitted with a pre-approval letter and proof of funds letter. Unfortunately there are still some new agents out there who allow their buyers to submit a pre-qualification letters or worse, they don't submit one at all with their offer and unfortunately their clients suffer the loss of a contract because of it.  What it comes down to is this; Any listing agent worth their salt will advise their seller on the pros and cons of each offer and ultimately, which offer is most likely to result in a sale. We know the difference between the two documents and know which one has been verified. The wise seller will choose the offer with a pre-approval letter based on a full credit check with verification of credentials and then negotiate the best deal from there. This is a serious buyer making a serious offer that will most likely result in a sale.  
  • If it's a pre-approval letter, the seller is content to take the property off the market while contingencies clear and the buyer is content their offer was chosen over others, resulting in happy campers all around and likely a closed sale. 

Thinking of buying or selling a home, condo or other Real Estate in Fort Myers Beach, Fort Myers, Cape Coral, North Fort Myers, Bonita Springs, Estero, Naples, Matlacha, Saint James City, Bokeelia, Pine Island, Sanibel or Captiva? Get in touch, I would love the chance to represent your best interest.

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