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The Power of the Pre-Approval Letter

By
Real Estate Agent with Coldwell Banker Realty MD RE License 579412

When I was first licensed in real estate, back in the stone age, we used to be able to take things upon their face value and accept that what was written on paper was actual fact.  So much has changed since those days.  And, I'm not sure it's for the better either. 

I received a contract on Friday on one of my listings.  It's a pretty good contract, full price but they are asking for a lot of closing help but what shocked me more was the buyer only put down $200 as earnest money deposit.  What kind of deposit is that?  If he walks away from the contract, $200 is hardly any compensation to the seller for time wasted. 

Then there's the preapproval letter.  I have come to learn that preapproval letters are generally not worth the paper they are written on and you can't trust lenders to tell the absolute truth, so help them God.  One good thing was that the letter was from a well known national lender, so at least it's worth something and they may still be in business on March 21 when we're supposed to settle.  If it were from Mom and Pop Broker I might be more concerned or one of the smaller lending institutions that reported to be in financial difficulty.  So, I called the loan officer on Friday, there's no cell phone number in the letter and the letter is really vague.  I waited all weekend, with no response, I called him again yesterday morning got his voice mail again, but then late yesterday he finally called me back.  He had verified the buyers income and credit score but not his assets.  So, I had to wait longer for him to verify that the guy had money. 

Now, more than ever, it is so important to verify the letter before your client accepts the contract.  But, even verifying the contents of the approval isn't enough anymore.  You need to be sure that your lender is going to be around when it comes time to close the transaction. 

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June Piper-Brandon ~ Associate Broker ~ MRP, AHWD, CDPE, ePro

Coldwell Banker

410-292-0100 - Direct   410-461-7600 Office

June Piper Brandon - Agent with Century 21 New Millennium

June Piper Brandon - Agent with Century 21 New Millennium

Comments (4)

Kevin McGrath
Long & Foster Real Estate Companies- Fredericksburg/Spotsylvania - Fredericksburg, VA
Long & Foster Real Estate Companies
I agree 100% - I always call the lender, not only to verify, but to make sure I have the correct contact info. There is nothing worse than getting near the closing date and finding out they have moved their office and you can not get in touch with anyone. I learned this the hard way.
Feb 18, 2008 11:34 PM
Gary McAdams
GMAC Schwartz Property Sales - Key West, FL
I agree.  I tell my sellers that a pre-approval letter is worth less than the blank sheet of paper was before the letter was written.
Feb 18, 2008 11:37 PM
Anona Large
Realty Executives Associates - Oak Ridge, TN
Oak Ridge, TN Real Estate

Any Tom, Dick, or Harry can make their own approval letter on-line now.  Bringing up the fact of checking on that lender is a great point as I am starting to feel the value of an approval letter is as valuable as Monopoly money.

Have a Fabulous Real Estate Day!

Anona

Feb 18, 2008 11:51 PM
Kirk Williams
Private Venture Capital - Everett, WA

If the client is working with an experienced local lending professional there is less likely of issues cropping up. Since the letter is something the real estate community has asked for, (originally) lenders have obliged.

The lender has ran their profile through the automated underwriting and that in itself does not guarantee "final" approval but it is a good indicator and the financing contingency covers the other side of your issue in terms of how long to you wait for "final" approval. 

The letter should be treated as a notice to the seller the potential buyer has been in touch with their lender and upon preliminary review of credit and income the financing should go through.

Many things can happen can't they? Issues regarding the property not disclosed, inspections or the client looses their job! In the past six months loan programs simply disappeared without notice or during the transaction! (That's always fun!!)

Calling the lender IS the best thing to do plus we don't mind talking to you. (at least most of us).

Feb 19, 2008 12:11 AM