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
1,340,400
Sally K. & David L. Hanson
WI Realtors - Luxury - Short Sale - CDPE, REDS
Keller Williams 414-525-0563

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 !

March 31, 2013 05:35 AM
Rainmaker
543,406
Kathy Toth
Ann Arbor Real Estate Experts - Kathy Toth Team
Ann Arbor Market Center Keller Williams

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

 

March 31, 2013 05:38 AM
Rainmaker
772,891
Mike Cooper
Your Winchester, VA Real Estate Pro
Winchester Real Estate Sales, Cornerstone Business Group Inc

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.

March 31, 2013 05:49 AM
Rainmaker
1,003,060
Sheila Anderson
The Real Estate Whisperer Who Listens 732-715-1133
Referral Group Incorporated

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.

March 31, 2013 06:33 AM
Rainmaker
772,891
Mike Cooper
Your Winchester, VA Real Estate Pro
Winchester Real Estate Sales, Cornerstone Business Group Inc

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

March 31, 2013 06:41 AM
Ambassador
1,110,055
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
772,891
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
838,361
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
772,891
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
136,548
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
772,891

Mike Cooper

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