Pre-approval question

When you make an offer on a house and they ask for your pre-approval letter, do you show them the max that you are approved for, or the amount that you're offering? Seems like you wouldn't want to show them what you are qualified for if your offer is lower than that...

Pre-approval question

I would get an approval letter for what you are offering. Are you working with an agent?

Re: Pre-approval question

thats a good question - i never thought of it.

DH and i got pre-approved and submitted a bid along with our pre-approval letter which was for more then our offer. i can understand why you wouldnt want to show that, but at the same time it would be a pain to contact the mortgage broker every time to write up a different pre-approval letter; but maybe its something to consider.

im curious what others do/did

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I would make sure I was working with an excellent broker or loan officer who can prepare a letter for the quote I am submitting.

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We had one letter and submitted that. We went back and forth with the seller quite a few times before settling on a price, and it would have been a huge hassle to get a new letter each time.

You might be pre-approved for much more than you're offering, but that doesn't mean you're going to pay more than it's worth to any other potential buyer. After all the house still needs to appraise above a certain threshold. I would imagine most sellers are aware of this.

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We actually photocopied it and blacked out the amount but kept what the max of the monthly mortgage payment and taxes could be for that purpose.

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my professional opinion

it's really a waste of time

just b/c you are pre-approved for $500K and the house is $450K -doesn't mean you are going to pay higher

I actually like to see a pre-approval letter for higher- it means your more qualified - a cleaner deal vs someone who is barely qualified for the amount

We (real estate agents) all know you are probably pre-approved for higher

When I ask for the letter I don't care as much about the amount as I care about the bank and loan officer

mostly the bank- are they some fly by night or are they Wells, CHL, Chase

I don't actually show the seller the letter either

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Pre-approval question

Don't show them!!!! that's what your real estate agent is for. You just say yes we are pre-approved they don't have to know for what.

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There is no bidding with out pre-approval letters and hasn't been in my 4 years in the business

I am not accepting an offer on behalf of a seller with out one

and I am not even showing you houses as a buyers agent with out one

Re: Pre-approval question

As another real estate professional, I agree with Beth 100%.

No realtor, or seller, will assume that just because a buyer CAN pay more, they WILL pay more. Most buyers are pretty savvy (and working with agents), so they are well educated about the market, look at comps, etc. What someone can afford and what they are willing to pay are two completely different things, and everyone knows it. I have NEVER had a seller on one of my listings say to me "well let's counter at $400K because that is what the preapproval letter says!" Sometimes the seller doesn't even see the preapproval letter until the price is agreed upon and we are moving ahead to contract (many times the listing agent reviews the paperwork but won't send it to the seller during negotiations; he/she will just send it to the seller's attorney once a deal is struck).

And when I am the listing agent, I don't like to see a preapproval for the exact dollar amount of a buyer's initial offer. A listing agent -- and a seller's -- worst fear is that they accept an offer, go to contract (essentially taking the house off the market), and find out a month or two later that the buyer can't get financing. So if it looks like a buyer is BARELY qualified, that makes me nervous, esp. with fluctuating rates. If someone can afford $350K at today's rate, they may not be able to afford it if the rate goes up a half point, you know?

Also, as a listing agent, I think, where do we go from here? If my seller wants to make a counter offer, can the buyer even afford to go up? And if they do come up, then I have to wait to get their new preapproval letter.

Honestly, in an increasingly competitive market, I think it can really hurt a buyer to get a preapproval letter every time they make an offer. What if you, as a buyer, see a great house at an open house on a Saturday afternoon. You want to offer $400K, which you know you can afford, but your preapproval says $365K, which was the amount of your last offer. There is a lot of activity at the open house and you suspect there will be multiple offers made. Now you are in the stressful position of having to track down your loan officer on a weekend to get a preapproval (and maybe miss your chance to get your offer in while you wait) or you have to submit your offer and say the preapproval will be forthcoming, which may put you at a disadvantage if others submit offers with all requisite paperwork, including a preapproval showing they can afford the house.

Obviously, some common sense comes into play. If you are preapproved for $1 million but you are looking at $500-600K homes, then no need to have a preapproval for $1 million. You can ask for one that is more in line with what you want to spend. But if you are preapproved for $350K, don't ask for one for $340K because that is what you are offering on a house, or for $340K because you don't want to go up to the $350K mark. It's not going to hurt you at all to have the preapproval letter for the actual amount you are preapproved for, but it can hurt you if you don't. At the very least, it's a lot of wasted time and energy for no reason!

ETA - I also agree that you must have a preapproval as a buyer, and you must be willing to provide it as needed. I, too, as a buyer's agent, will not show properties to a buyer who doesn't have a preapproval. I will schedule a buyer consultation with someone to go over the process and advise them on how to get preapproved, but if they don't follow up and get a preapproval letter, I would not waste their time, my time, or anyone else's by showing them properties. A preapproval is a prerequisite to house hunting.

I would also NEVER let a seller client accept an offer if I haven't seen a preapproval (and I don't know an agent who would). In fact, if I am unfamiliar with the lender, I will call to verify the buyer's financial qualifications. There's too much at risk, and it's my job, as a listing agent, to protect the seller.

Message edited 10/1/2013 8:34:33 PM.

Re: Pre-approval question

Thanks so much for these replies!