As I begin a buyer relationship, one of the first things I ask my buyer for is a letter of pre-approval from a reputable lender. This is important for several reasons.
You’ll know exactly how much money you can qualify to borrow. You might think you have a pretty good idea as to how much you can borrow. But your lender will help put things into perspective by factoring in things such as adjustable interest rates, mortgage insurance, property taxes, down payment percentage, etc.
Real-life example: My clients had used an online mortgage calculator and felt comfortable with a $200,000 mortgage. They were more than surprised to learn their lender would only approve them for $150,000!
You’ll have more leverage with counter-offers. The seller will feel more secure in negotiating with you, the buyer, because they know you are qualified to obtain the financing you need to close. You’ll also be glad you have your letter if you find yourself in a multiple-offer situation. Your offer will weigh heavier than one without a letter.
Real-life example: Even in a buyer’s market, sellers can find themselves in multiple- offer situations. I recall once when my sellers had four offers to choose from with less than $1,000 from top to bottom. In the end, it was a pre-approval letter from a reputable lender that swayed the sellers to take one of the offers!
I, your REALTOR®, can work better for you. First, a pre-approval letter will help me search better to match your specific needs. Second, many sellers–and not just those of luxury properties–will not make appointments to show their properties or accept offers without pre-approval letters.
Real-life example: By not having a pre-approval letter in place, my buyer lost out on a home whose sellers would not accept an offer without one. By the time my buyer obtained one, the sellers had accepted another offer!
Finally, be forewarned…
Make sure you have a pre-approval letter, and not a pre-qualification letter. A pre-qualification is not as reliable. Calling up a lender, giving some financial information, and then obtaining a letter without any verification or documentation is basically futile.
Pre-approval letters are time-sensitive. Many are good for only 60 days. Be careful, as always, with your credit spending and payments–in case you need to secure another letter.