For the most part, prequal letters from a lender or mortgage broker are useless, but sellers' agents in Sacramento insist that the buyer's agent include a prequal letter with a purchase offer. They want to see that the buyer is qualified to purchase the property and has at least taken the step to talk to a lender. But the letters themselves don't guarantee that the buyer will get a loan.
If you want to give a Sacramento home seller ammunition to reject your purchase offer, here are three things you can do to mess it up:
Choose an out-of-area lender. There is nothing inherently wrong with an out-of-area mortgage broker, but listing agents typically don't know the lender nor its performance record and, let's face it, there are a lot of shaky mortgage brokers practicing. Listing agents and their sellers don't want to see the transaction fall apart because the buyer tried to get a loan from a lender who could not perform.
Submit a prequal letter instead of a preapproval letter. A prequal letter says the lender has taken a loan application. A loan preapproval letter says the lender has obtained the buyer's credit report, approved it, ran it through actual or desktop underwriting and reviewed the buyer's documentation. It speaks volumes.
Attach a loan letter that shows the buyer is qualified to pay more than the asking price of the home. Nothing says to the seller: "Let's issue a counter for a higher price" faster. In fact, the mortgage broker I work with emails me the preapproval letter in a Word format so I can immediately lower the price, if necessary, before submitting the offer.
I always suggest that my buyers compare rates and terms among lenders, although I have no stake in the lender the buyer ultimately chooses. That's the buyer's decision to make. But I do want to submit the buyers' offer in the strongest light possible, and that means submitting a preapproval letter (not a prequal) with their offer.
If your lender can't or won't issue a preapproval letter, then you might want to look for a lender who will. Don't sabotage your efforts to buy a home by choosing the wrong lender.
Photo: Evelyne Jamet at Vitek Mortgage, by Elizabeth Weintraub
The Short Sale Savior, by Elizabeth Weintraub, coming from Archer Ellison in January 2009.
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Certified HAFA Specialist
My Sacramento Real Estate Listings
Elizabeth Weintraub is an author, home buying columnist for The New York Times-owned About.com, a Land Park resident, and a Land Park real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown and East Sacramento. Weintraub is also a Sacramento Short Sale agent who lists and successfully sells short sales throughout the four-county Sacramento area. Call Elizabeth Weintraub at 916.233.6759. Put 35 years of real estate experience to work for you. Broker-Associate at Lyon Real Estate. DRE License # 00697006.
The Short Sale Savior, by Elizabeth Weintraub, available at Amazon.com.
Lyon Real Estate is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan.
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The views expressed herein are Weintraub's personal views and do not reflect the views of Lyon Real Estate.
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Elizabeth, you nailed all three of these. The out of the area lender is one most Realtors don't consider to be as big of a hiccup as it really is. That and Internet-based lenders.
Gary: I suggest to my buyers that they submit a preapproval letter from a local mortgage broker because I know how much weight it carries among listing agents. If the buyer later decides to work with an Internet lender or an out-of-area lender, that's OK, but they rarely do, which royally irritates the buyer's first lender.
I got a prequal letter from an out-of-area lender yesterday. The guy has been sitting on this file for 2 months without issuing a preapproval letter. Soon as he found out the buyer was obtaining a preapproval letter from a local mortgage broker, he managed to shoot one over to me. But hey, the guy has an AOL account. What can you say?
In New Jersey, the same thing goes....Pre-Approval. Being in Mortgages, the only two items that are missing is the appraisal and the title, everything else is verified and this mortgage is ready to go. Doing those steps prior, it also takes less time to get the physical mortgage.
When I sell my house, I will be asking the same thing.
When I become a Realtor, I will not take anyone out without one.
Elizabeth - This is some very good advice. Pre-Approval letters are the way to go! :)
Elizabeth - So true! Prequal letters aren't worth the paper theyre written on. When I take on a new client, I don't issue any kind of acceptance until I receive all the necessary documentation that I'm going to need to run them through DU. If I don't get any hinky conditions other than property, title and appraisal conditions then, and only then, will I issue a pre-approval letter.
Elizabeth: Nothing like playing poker when you know what the opponent is holding. Just why do Realtors submit approval letters for more than the offer price. Such a no-no.
Elizabeth - always good advice. I like the WORD format idea.
I definitely prefer local lenders because we can always give them the evil eye after the fact if things go badly.
As a short sale saviour, how you deal with the scenario, when the buyer gets a pre-approval letter, and then it took us 6 months to get the sale approved, and by that time the lender was out of business, and the type of program no longer available?
We didnot find the solution, or we found the most effective - the buyer closed for cash, but not everyone can reach into the pocket of your relatives and get $200K+
I agree but it does make me nervous that the buyer can only qualify for the amount of the purchase price. I do like to see they can buy more even if we decide to not to counter the offer.
Elizabeth, you're a walking encyclopedia of real estate information! Or is it sitting? Good stuff. ;-)
BTW? I tagged you for a MeMe - easy one about books....you should be good at this stuff. ;-)
Elizabeth
And so a star is born.
All my best!
Tom BRaatz
Hi Jon: Working with an excellent mortgage broker is the answer. In your above example, the mortgage broker I work with would have scrambled to find another loan the minute the program vanished, so by the time short sale approval came around, the buyer was still able to perform.
Hi Terry: The thing is as a listing agent, if you get a preapproval letter for the exact amount of the purchase price, with no other explanation from the buyer's agent, and assuming the list price is higher, you pretty much know the buyer will qualify for the higher price or the offer would not have been made. Whether the buyer will be willing to go higher, though, is another story. If agents submit a preapproval letter for an amount less than the purchase price and discloses that the buyer can't qualify for more, I tell them to go buy something the buyer can afford. Then they generally spill the beans that, well, the buyer could afford to pay more.
Hi Teri: I left you a message about that meme. I guess you want me to post a blog about it, but hey.
I so agree with all three points. I just commented on another blog here asking about if they should even do pre-approval letters with the offer. We do it all the time. And we have the lender that pre-approved it to write it to reflect the asking price once we are ready to submit ad offer. It is never a problem.
See, I don't have as much patience as you, Missy. I never want to wait for the lender to draft a new preapproval and send it to me. Sometimes there isn't any time to wait, especially when the listing is hot and receiving multiple offers. And sometimes, the lender can't get the preapproval to me within a reasonable time frame, which for me is like five minutes. Most take several hours, if they can even get it out on the same day. That's what I prefer Word formatted preapproval letters that I change myself. :)
Elizabeth, I agree with your first two points completely. I think the third, whether or not to submit a pre-approval letter for more than the offer, is dependent on some other things. I would consider my client's loan to value and strength as a borrower, the activity or competition for the specific property, and my client's motivation level for the property. I've found that many of my buyers are gravitating toward homes listed under market value and generating multiple offers. I think it also depends on whether it's a standard sale, a short sale or an REO. I also request that my buyers obtain pre-approval letters for a few different amounts early on in the game, just in case the lender is unavailable at the time we write the offer.
Hi Kelly: The thing is everybody knows that a preapproval letter for the purchase price is sent to protect the buyers' negotiating position. I have had plenty of buyers who have won multiple offers for more than the amount of their preapproval letter, and not one agent or seller has asked for proof that the buyer is qualified to pay that increased amount. But once the sellers know the buyers' top limit, they will push for a higher price. It makes no difference whether it's a short sale, an REO or an ordinary transaction; my buyers are better off not weakening their negotiation position. But every agent handles their transactions differently.