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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Rainmaker
1,387,362
Sally K. & David L. Hanson
Keller Williams 414-525-0563 - Brookfield, WI
WI Realtors - Luxury - Short Sale - CDPE, REDS

Falling in love with a house you can't afford is never a good thing...everything that IS affordable never makes the grade. Good advice..Happy Day !

Mar 31, 2013 05:35 AM #1
Rainmaker
548,267
Kathy Toth
Ann Arbor Market Center Keller Williams - Ann Arbor, MI
Ann Arbor Real Estate Experts - Kathy Toth Team

Mike

I guess I wonder why you are getting that question when writing a contract. We don't get in the car with a buyer without a pre approval.

Have a Blessed Easter – Warm Regards from Ann Arbor

 

Mar 31, 2013 05:38 AM #2
Rainmaker
793,894
Mike Cooper
Winchester Real Estate Sales, Cornerstone Business Group Inc - Winchester, VA
Your Winchester, VA Real Estate Pro

So true, S & D.  Have a great Sunday.

Normally, we start our first conversation with that discussion, Kathy.  Ironically, I've had multiple clients who I met at a property (which they bought) for the first time and that was the discussion we had.  I try to take care of that before we ever hit the streets, but with the pace of our current market it ends up being at the first showing.  I prefer it in my office.

Mar 31, 2013 05:49 AM #3
Rainmaker
1,086,990
Sheila Anderson
Referral Group Incorporated - East Brunswick, NJ
The Real Estate Whisperer Who Listens 732-715-1133

Good morning Mike. As usual your blog is thoughtful, well written, and focused. Amazing how simple things are sometimes made complicated. They are not. Suggested. Happy Easter.

Mar 31, 2013 06:33 AM #4
Rainmaker
793,894
Mike Cooper
Winchester Real Estate Sales, Cornerstone Business Group Inc - Winchester, VA
Your Winchester, VA Real Estate Pro

Thanks, Sheila.  I hope you're on the mend.  Have a great Sunday.

Mar 31, 2013 06:41 AM #5
Ambassador
1,183,147
Dick Greenberg
New Paradigm Partners LLC - Fort Collins, CO
Northern Colorado Residential Real Estate

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.

Mar 31, 2013 07:00 AM #6
Rainmaker
793,894
Mike Cooper
Winchester Real Estate Sales, Cornerstone Business Group Inc - Winchester, VA
Your Winchester, VA Real Estate Pro

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

Mar 31, 2013 07:05 AM #7
Rainmaker
888,697
Will Hamm
Hamm Homes - Centennial, CO
Where There's a Will, There's a WAY!

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. 

Mar 31, 2013 08:07 AM #8
Rainmaker
793,894
Mike Cooper
Winchester Real Estate Sales, Cornerstone Business Group Inc - Winchester, VA
Your Winchester, VA Real Estate Pro

That's scary, Will.  Happy Easter!

Mar 31, 2013 08:09 AM #9
Rainer
161,941
Jane Chaulklin-Schott
TEAMCONNECT REALTY - (407) 394-9766 - Orlando, FL
TeamConnect Luxury Homes - Orlando, Florida, 32836

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.

Apr 13, 2013 09:01 PM #10
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Rainmaker
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Mike Cooper

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