Ask anyone who’s been in real estate for a while they’ll tell you: “We spend a bunch of time working with you on selling your home, spend money to market the home, host open houses and show the home to prospective buyers, finally getting an offer in writing that everyone is happy with and putting the home under contract – only to discover the buyer can’t qualify for a mortgage. That wastes and agent’s time, wastes your time and can cost valuable time that the home is off the market. We can protect your interests by asking for a pre-approval or at least a pre-qualification letter with any offer submitted on your home. This minimizes the chance that we’ll be working with an unqualified buyer.
Note that there is a difference between being pre-qualified and being pre-approved. Someone who is pre-qualified has not actually put in a formal loan application. The borrower has simply stated his or her assets and income to the lender, and they’ve probably pulled a credit bureau report. But at the pre-qualification stage, the lender usually hasn’t verified the information with any reliable third party.
If a buyer is pre-approved, it’s still not an ironclad guarantee that he will get a mortgage issued on a particular property. But it does generally mean that the lender has already looked at the buyer’s W-2 statements, tax returns, income statements, and bank and financial accounts.
From your perspective, a pre-approval letter is much stronger – but also much more elusive.
What do you need to see in a pre-qualification letter? At a minimum, you want to see these things nailed down:
- Your buyer identified by name – whether a corporation or individual.
- The loan amount they can qualify for.
- A statement that the lender has determined that the buyer has the assets on hand to go through with the transaction.
- An expiration date – say, 60 days from the date of the issuance of the letter.
That said, it’s nowhere near as strong as a pre-approval letter. When someone comes pre-approved, you know that individual has invested some time in the process. They have also put their own credibility on the line, and sworn under penalty of law that they have the assets they stated they have – and face jail time for mortgage fraud if they are caught lying, because now the bank has loan documents with their signature on them.
Once someone goes through that process, and only has a certain amount of time in the pre-approval window to buy a house, he or she is much more eager to close a deal – and less likely to waste your time or theirs with unproductive lowball offers.
As Realtors®, when we see offers with a pre-approval or at least a pre-qualification letter, we tend to advise clients to consider those offers over offers with no letters. When it comes to considering a written offer from a buyer, don’t be shy about protecting your time by insisting on some sort of pre-qualification documentation.
Cheers and I hope to hear from you soon!