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The importance of a pre-approval letter

Recently I lost a client because I insisted they get a pre-approval letter before I showed them a home. I would like to write this post to my future clients and any future home buyer that wants to start looking for a home.

The pre-approval letter is a very important step in the process of buying a home, it tells you the price range you should start looking in and also gives you a chance to clear up any errors on your credit report that may arise prior to the closing on your new home.

From the seller's point of view, they want to see a pre-approval letter to see how serious you are about buying their home. They don't want to accept your offer and then 3 days later find out you are not qualified to purchase their home. A seller has to vacate their home when you call for a showing and if you are not pre-approved then you are just wasting their time. They have to do a quick clean job of their house and then exit. How would you like it if you were called by complete strangers and said we want you out for an hour so we can come see your home... every night.

From an agent's point of view, it tells them that you are serious about buying, that you are willing to take the 15 minutes to fill out the paperwork and get what needs to be done to the lender prior to looking at homes. I don't like to show homes to someone who hasn't been pre-approved for two reasons. The first being is my own security. I work in a business that I meet new people everyday and I don't know you. By getting a pre-approval letter, I at least know that someone now knows who you are, because you gave the lender your SS# so they could pull your credit. The second reason is that I get paid to sell homes and I have lots of buyers that are pre-approved. If they find the home of their dreams, they are ready to write the offer then and there. Not wait one week for an answer from a mortgage professional, by that time the house you want may be gone!

From your point of view, it says I'm ready to buy a home, I'm not just window shopping. It also tells you how much you can afford. If you only pre-approved for $250,000 and you are looking at $350,000 homes then you are just wasting your time, the seller's time and your agent's time. If you are just window shopping, then don't hire an agent to drive you around and waste their time and gas. Go out on Sundays and look at homes when they are already being held open by agents. Then when you are serious and are ready to go, get the pre-approval, call your agent and find your dream home!

I hope this helps you understand why agents require you to get a pre-approval before they take you out to see homes.

Todd Clark - Broker / Sales Coach
Palazzo Realty Group
Phone: (503)524-9494
Fax: (503)622-8739

Posted by Todd Clark (Broker/Sales Coach), GRI (Beaverton, Oregon Real Estate Expert) on 03/10/2008 10:58 PM

Comments (24)

Pre-Approval Letters in the Home Buying Channel

the preapproval letter, buying a home in beaverton oregon, todd clark, beaverton oregon realtor, beaverton oregon real estate agent

Originally posted at: Living Beaverton - Your guide to everything Beaverton: The importance of a pre-approval letter

This post has been included in Oregon Information Washington County, OR Information

24 Comments on The importance of a pre-approval letter

MAR

2008

Here here!

Be serious with us, we will be serious with you! This is a business that involves alot of money, if you (non-preapproved buyer) want to waste time, just keep looking through Harmon Homes...

Seriously, it's a business, don't waste time if you(Buyer) want to buy a house...

Here in California, at least in the valley (Sacramento area) we are seeing sellers who want to see a pre-approval with a credit review...not just a lenders word.

Todd,

It's becoming a standard practice nowadays that agents require a mortgage pre-approval letter from a lender before taking prospects out to tour homes. If a buyer balks, then he probably isn't serious and would waste everyone's time. Must read for buyers.

Amen to that, Todd! I, too, have lost a customer or two because they did not want to be pre-approved before looking at homes. OH, Well!

I'm becoming more and more protective of both my time and the time of those involved in each showing. I need to know that my buyers are as serious about this endeavor as I am. You hit on another thing I've become much more conscious of and that is personal safety. Too many scary things happening in our industry lately. You've given a great explanation for practicing this standard. I think the homebuyers will understand -- the serious homebuyers, that is.

If a client wants me to show them property without speaking to a lender first, I've got a couple of lenders who can get a pre-approval letter done pretty quickly, before we go out. It does neither one of us any favors to look at property that is outside your comfortable affordability. The very first thing I go over with a new client is what their budget is, and what they are comfortable with.

Rule #1: Even if you are approved for "X" amount, it doesn't mean you have to spend that much!

Rule #2: Plan your budget around the higher payment--that way you are buying a home that fits your life, not scrimping and clawing just to make a payment every month.

Rule #3: I can't help you if we don't know your buying power--a PreApproval letter tells us that (not a Pre-Qualification Letter)!

MAR

2008

I also explain that i don't want them to fall in love with a house, then find out after getting an offer accepted that they aren't approved for that much house. I've seen it before nd it can be heart-breaking. Good luck!

Very well said, Todd. If they can't take 15 minutes out of their day to start the financing process, then the chances that they are serious is probably slim to none.

Todd, I will take someone out once to help establish a relationship. Prior to that outing though I will email them a list of mortgage lender contact info (if they haven't decided on one yet) and also let them know that this needs to be addressed before we can narrow down the next home/homes to view. I find this works well for me, and for them also.

Very good point. If buyers are serious about purchasing, they should not object to being pre-approved first. In my office, pre-approval of buyers is required before they allowed to preview homes. Although a pre-approval does not guarantee a commitment, it does initially help to get all parties involved on the same page.

Todd, Point well taken and I am finding that serious buyers are going to the next level of actual mortgage approval to give them a leg up in the negotiations. After all what seller does not like the security of signing a contract knowing that the mortgage process is complete?

Todd,

Great post! The only reluctance I can see on the part of consumers may come from feeling they are committing to one particular lender...consumers like keeping their options open!!! Thanks, Fran

Great information. I wish some of the real estate agents I work with would read this post and heed its advice.

I think I just lost a client, too, for the same reason. But like you said, I have many "qualified buyers" who I would rather spend my time on.

One of our agents was dealing with a buyer just yesterday that didn't want to get pre-approved. We have already sold this client's house and he is looking to move on. His point of view was that he didn't want to apply for a loan before he knew if the seller was willing to accept his offer. He's very "old school", being in his 80s. The agent tried to convince him that his offer would be taken more seriously if it was accompanied by a pre-approval letter, but he just flat refused. She even enlisted my assistance, but I wasn't able to convince her any more than she was. (We're both just young whipper snappers to him!) It's quite rare for us not to show a pre-approval with our offers, but in this case we're doing it. We put the buyer on notice that his offer may not be taken seriously or at the very least wouldn't appear as strong. He has to be out of his house by next Monday! Oh well... all we can do is advise. The client makes the final decision. If we weren't already working with this client and didn't already know he had the money we most likely would have just let him go. If a buyer isn't willing to invest the 15 minutes, they are USUALLY not worth your 15 minutes either. This is just one of those exceptions. Thanks for the post. I must admit, I never really thought of this as a safety issue. Thanks for the new insight.

Todd, I'm with you on this one and I let the buyer know they can use any lender they choose but without a prequal I won't show them property.

APR

Johnny - I am amazed at how many people get depressed because they do the process backwards and look at homes first only to find out they can't afford what they like.

Lori - We have been seeing that here as well, they don't want to take their homes off the market only to find out later that the buyer really wasn't pre-approved.

Esko - I won't let them near my car until they have that letter in hand, it is like an insurance policy. No insurance, then no driving.

Nancy - I've learned that it isn't a sad thing, but a liberating thing.

Elaine - If they aren't willing to do it, it isn't worth my family losing me to show the home.

Kent - I now think if I will lose a potential client because they don't want to get pre-approved, I've got a team of mortgage brokers that will meet me at the house with the buyers and we get them pre-approved at that first showing. If they still balk, they don't get to see any more homes with me.

Marlene - It really is very heart breaking to see that happen, but if they weren't serious in the first place, they were just wasting our time.

Jesse - Exactly! 15 minutes to see if they are serious and to protect myself are huge!

Kris - There are lots of dangers going out before you have established who they are by getting that pre-approval... So be careful!

Derrick - No it doesn't show a commitment, but it does help them in the process and usually during that process you can build that relationship.

Judy - Very Very True!

Fran - I think if it is explained to them they aren't committed to that loan officer and that without the pre-approval the odds of actually purchasing a home go down by over 75%.

Don - Feel free to forward this post to them if you need to!

Chelle - I am thinking they aren't really a buyer until they are ready to buy!

Katherine - In that case, you have already an established relationship and know who he is because you sold his home, he isn't a stranger and that is the difference, but you are right some sellers will turn down his offer just because of not having that.

Cameron - I've certainly done the same thing over and over, but sometimes it is just best to walk.

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