Q&A: "Why do I need a pre-approval letter to submit a contract?"

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Managing Real Estate Broker with Winchester Real Estate Sales, Cornerstone Business Group Inc 0225086119

"Why do I need a pre-approval letter to submit a contract?"  I hear that question with about 1 out of 3 new clients that I meet.  It's simple.  The seller wants to know if you can buy the house.  A pre-qualification letter may suffice for some sellers, but I'm running into more and more banks that won't accept a pre-qualification letter in place of a pre-approval letter.

A pre-qualification letter is a letter based upon information given to a lender, but isn't necessarily verified.  For instance, I may have a client call a lender who will take his information over the phone and then formulate a dollar amount the buyer would qualify for if the information is verified.  It's a simple process.

A pre-approval letter is going to include verification of income, debt, credit, available funds, etc.  It's much more valuable in a bidding war because it gives a seller up front information that will not have to be verified after the offer is accepted.  It speeds up the process and gives a seller confidence to accept an offer.

When you are ready to buy a home, start at your lender's office.  Find out what price property you are qualified to buy, and then contact your Cornerstone agent to find that home.  In today's competitive real estate market, you want every possible advantage when it's time to buy.

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Ambassador
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Dick Greenberg
Northern Colorado Residential Real Estate
New Paradigm Partners LLC

Hi Mike - Great explanation. Of course, the quality of the lender who wrote the letter is also a pertinent fact. There are several local lenders here whose "pre-approval" letters are only fit for wrapping fish, but and a couple of national ones that don't make us very comfortable, but that's where experience comes into play.

March 31, 2013 07:00 AM
Rainmaker
718,582
Mike Cooper
Your Winchester, VA Real Estate Pro
Winchester Real Estate Sales, Cornerstone Business Group Inc

I hear you, Dick.  I do have a couple I depend on.  I try to ignore the others. 

March 31, 2013 07:05 AM
Rainmaker
753,620
Will Hamm
Where There's a Will, There's a WAY!
Hamm Homes

Hello Mike and Happy Easter, I know of a lender that use to say, here is a lender which I sign, just write in the buyers name and the loan amount you want and submit it with the contract.  I Do Not Use Him. 

March 31, 2013 08:07 AM
Rainmaker
718,582
Mike Cooper
Your Winchester, VA Real Estate Pro
Winchester Real Estate Sales, Cornerstone Business Group Inc

That's scary, Will.  Happy Easter!

March 31, 2013 08:09 AM
Rainer
109,373
Jane Chaulklin-Schott
TeamConnect Luxury Homes - Orlando, Florida, 32836
TEAMCONNECT REALTY - (407) 394-9766

As a new agent, I was given some solid advice from an experienced agent, 'No one ever gets into my car (meaning buyer) without a pre-approval or proof of funds letter in their hands.' Thanks for your concise, yet great defining blog on the importance of these letters.

April 13, 2013 09:01 PM
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Rainmaker
718,582

Mike Cooper

Your Winchester, VA Real Estate Pro
Winchester has a place for you! Call me.
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