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What Does a Pre-Approval Letter Mean To a Seller?

Mortgage and Lending with Guaranteed Rate

April 04, 2012 05:55 AM

In today’s world, home-buyers needs a pre-approval letter before any seller will take them seriously.

A buyer needs to be pre-approved before they can make an offer on a home because the pre-approval indicates they’ve been approved to afford a certain loan amount. The best real estate agents make sure their clients are pre-approved at the beginning of the home buying process.

It is also important to know that a pre-qualification letter is NOT equal to a pre-approval letter.

A pre-approval letter means that the lender has independently verified your credit, income, and all the factors that are needed to determine a loan amount. The buyer has access to that loan when an offer on a home has been accepted. A pre-qualification letter is not an approval for a loan.

When you are pre-approved, there is very little that can stand in the way of you purchasing a home for the dollar amount you’ve been approved for.

michael dunsky

What Does a Pre-Approval Letter Mean To a Seller?

1. Your pre-approval letter will either give the seller reasons to accept your offer or to reject your offer. Make sure you are making offers on houses within the range of what you’ve been approved for.

2. Sellers and real estate agents feel more comfortable if the letter is from a local lender. If the agent can vouch for the mortgage lender than it makes a great impression on the seller who may be skeptical about pre-approval letters from non-local companies.

The pre-approval letter also let’s your real estate agent know what you can afford so they can find a home to fit your profile.

Remember that sellers need to see that you are pre-approved, not just pre-qualified. For more help with getting your own pre-approval letter, give us a call today at 508-528-1800.

	Michael Dunsky Vice President of Mortgage Lending
P: (508) 528-1800 F: (508) 749-7695	Michael.Dunsky@guaranteedrate.com guaranteedrate.com/MichaelDunsky NMLS ID: 21372
38 Pond St, Ste 208 • Franklin, MA • 02038NMLS ID 2611 Licensing Information:http://www.guaranteedrate.com/licensing

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Elite Home Sales Team

Elite Home Sales Team OC - Corona del Mar, CA

A Tenacious and Skilled Real Estate Team

In our area you need a pre - approval letter to have your offer heard.

Jul 29, 2012 07:15 AM

Anonymous

Frank Bartlo - Budget Realty

Where does one actually get a truly solid pre-approval?

"Pre-approvals" are viewed sith a great deal of skepticism in my market, and rightly so.

Jul 29, 2012 08:18 AM

#49

Aneta Ivanova

Urban Nest Realty - Las Vegas, NV

#Your Realtor for Life

Specially on this market right now with competing offer, you the buyer have to know before start shopping how much is his market power (shopping power) and also saves his time and Realtor's time. Time is a money!

Jul 29, 2012 09:48 AM

Sharon Sanchez

Ace Home Realty - Carson, CA

Your Number "1" Source For Real Estate.

Hi Michael. I don't want to waste my time. So I always ask for a pre-approval letter.

Jul 29, 2012 11:54 AM

Leigh McPherson

RE/MAX of Orange Beach - Orange Beach, AL

Short, sweet and simple! Good real estate advice in a nutshell. In my market ( second home/vacation/investment) it is crucial that the lender is familiar with the properties. On the beach, condo projects and beachfront homes have special considerations that an experienced local lender and underwriting team can breeze right through - while an outside lender will surely have more questions about the project or property. Out of town lenders who don't know the ins and outs of beach condo lending have soured more than one deal.

Jul 29, 2012 02:14 PM

Anonymous

Brian

I don't see too many pre-approvals presented to sellers; it is not customary in my neighbourhood, but it is customary to ensure our buyers are pre-approved. I have endured a few clients who would not get the pre-approval until they found a property, but in each case they were let down by the figure, and had to start their search again. I have learned the lesson to not show people around until they finally get the approval, and preferrably from a broker I recommend, so that communication is better.

Jul 29, 2012 02:27 PM

#53

Jon Quist

REALTY EXECUTIVES ARIZONA TERRITORY - Tucson, AZ

Tucson's BUYERS ONLY Realtor since 1996

You have to have a preapproval letter AND the letter is preferably from my top local lender. EVERY time I am forced to work with a non local lender, bad things can and usually do happen. As recently as LAST week!

Jul 29, 2012 04:52 PM

Michael Dunsky

Guaranteed Rate - Franklin, MA

NMLS ID 21372

Bill and all- Thanks for the comments and your thoughts surrounding pre-approvals.

You've provided some great insite that goes without mention that first, pre-approvals have to be credible (ALWAYS consider the source). As well, credit reports are an absolute. I would consider it malpractice for a loan officer to provide a pre-approval letter without running and carefully reviewing a borrower's credit report.

Along with the credit there needs to be a solid understanding of the borrower's income to ensure that the borrowers are, without a doubt "bankable." This is what the pre-approval process is all about. It's the first step in showing that there is not only motivation for the buyers but also a "vetting" of sorts that they, indeed have the necessary means and desire to afford to purchase a home within the guidelines of today's mortgage market.

I stongly agree with a pre-qualification having no value. To be honest, I don't even know what a pre-qualification is. And, I strongly disagree that pre-approvals have no value... on the contrary. A real, credible pre-approval will help facilitate a successful negotiation and without these it's really just a shot in the dark whether a buyer can perform and close. How many deals do you really want to put together only to have them fall apart due to the buyer's inability to finance that home?

As we all know a pre-approval is just the start of the mortgage process. Borrowers still need to run through the mortgage gauntlet and jump through the many hoops that Fannie Mae and Freddie Mac have laid out for us during the these times of more restrictive guidelines and the substantial compliance concerns. There are additional pitfalls mentioned in your comments about the IRS 4506T (tax transcripts), verification of employments within a few days of closing, appraisal issues... and the list goes on. AND, they are all true. So the pre-approval is just a start and from there it's up to the loan officer and lender to perform as well as possible to approve the borrower, clear any and all conditions, and ultimately not close late or ugly.

Jul 29, 2012 10:36 PM

Alyse "Aly" Sands

AGORA Realty - Nashville, TN

It's Good To Be Home

As a former mortgage Broker, I know the difference between a prequalifcation and a preapproval but I'm surprised that so many agents don't. As a real estate agent, I can prequalify a buyer but I can't pull their credit or see if they have judgements against them that need to be cleared before they'll be granted a loan.

I've received "approval" letters from my buyers' lenders that state that this is a prequalification letter and the preliminary verifications have not been done yet. Why am I being given this? I've explained what I need and have been told by L.O.s at large companies that this is all I'll get. This can't be true. I won't show or send an offer without a viable letter. ...oh, and forget a commitment letter. What is a commitment letter if it has stipulations? A pre-approval letter.

Jul 29, 2012 11:01 PM

Brad Baylor

ERA Coup Agency - Milton, PA

Mike - My policy is that I'll take a buyer to one showing without a pre-approval. After that, they've got to have one or I won't work with them.

Jul 29, 2012 11:51 PM

Anonymous

Michael Dunsky

Thanks Brad- Why would you take out buyers to a showing without a preapproval? To establish a relationship or build report? Just curious...

Jul 30, 2012 12:01 AM

#58

Nina Hollander, Broker

Coldwell Banker Realty - Charlotte, NC

Your Greater Charlotte Realtor

It's the first question I ask prospective buyers--"have you been pre-approved?" If not, we don't look at houses until we know just what they are qualified for. If they resist, they should waste another agent's time as far as I'm concerned.

Jul 30, 2012 12:18 AM

Ben Yost - 303-587-4297

First Time Home Buyer, Mortgage Rates, Pre-Approval - Denver, CO

FHA, VA, Conventional - Mortgage Loans in De

Your only has good as your Loan Officer.

Jul 30, 2012 12:49 AM

Jay McHugh

SendOutCards-Appreciation Marketing Expert - Acton, MA

YOUR SendOutCard Mentor

Right on Mike....without having a clear understanding of what the the buyer can not only afford but is wiling to pay is wasting time for all parties...having you on our side makes that transition much easier and will assist the seller in making a sound descision....

Jul 30, 2012 02:06 AM

Coletta Ray

Exit Clovis Realty - Clovis, NM

Unfortunately in our world today the pre qualifing letter can disappear on a new condition thought up today, by a new underwriter.

Jul 30, 2012 02:24 AM

Joe Metzler

Cambria Mortgage - Saint Paul, MN

Sr Loan Officer

What does a Pre-Approval Letter mean? Depends who you are getting it from! It can be a rock solid document that you can place a high level of trust, or it can be completely worthless.

Unfortunately, there are still a large number of people, especially at the banks, who pass around approval letters without verifying anything.

The second biggest joke here is that so many short-sale and foreclosure properties REQUIRE someone to get pre-approved at that bank - and the banks do a worse job than most others when it comes to pre-approving anyone.

Lending rules, even with dramatically less loan options today has become overly complex. Even 20-yr experienced, top rated Loan Officers like myself are constantly looking at the guidelines to make sure what we thought was true yesterday is still true today.

The document is only as good as the loan officer writing it. DO NOT ASSUME because it came from a bank that it means anything more or less than anywhere else!

Jul 30, 2012 03:33 AM

Anonymous

Well said. Always consider the source

Jul 30, 2012 03:41 AM

#64

Nan Jester

Exit Real Estate Gallery Jacksonville Beach, FL - Jacksonville Beach, FL

Realtor, Exit Real Estate Gallery

So much easier to have one in advance since many sellers will not entertain offers without them.

Jul 31, 2012 04:12 AM

Gene Riemenschneider

Home Point Real Estate - Brentwood, CA

Turning Houses into Homes

You cannot get anyone to look at your offer without one. I always get the two terms confused as to which is better, but I made a point of remembering this time.

Jul 31, 2012 12:54 PM

David Cooke

DLC Jencor Mortgages - Calgary, AB

your Calgary mortgage broker

Interesting Mike. Here in Canada, a pre-qualified client has had the mortgage company underwriters examine his employment letter, credit history etc. A pre-approved client knows what they can afford but no documentation has been examined yet. Once in a while there's a collection or late payment that can mess things up. Another problem can be how they are paid. Overtime and car allowences need to show a 2 year average before a lender will use this income.

One thing that I have found from talking to realtors is the experienced ones will not take anyone out house hunting until they have been pre-approved. Getting interested in a house that's out of your price range is disappointing to the client, and a time waster for the realtor.

Your first question as a realtor should be, "how much have you been pre-approved for?"

Aug 03, 2012 03:02 AM

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