Home Selling in New York>Question Details

Hbnyc, Both Buyer and Seller in 10023

How important is a mortgage pre-approval letter from a potential buyer, when as a seller I am evaluating an offer?

Asked by Hbnyc, 10023 Wed Feb 10, 2010

And how long are pre-approval letters good for?

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Elizabeth is right! It is very important to know that the potential buyer has the means to back up the offer. Otherwise you could end up taking you home off the market only to find out later that they don't qualify for a mortgage. Make it a policy that any offers given must have a pre-approval, not a pre-qualify letter or proof of funds in the case of a cash buyer. Good Luck!
0 votes Thank Flag Link Wed Feb 10, 2010
Dear Hb54321,

Be sure to know if the buyer is providing a pre-qualification or a pre-approval.

The first step for a buyer in the mortgage process is to obtain a pre-qualification. This is prepared by the mortgage representative based on information provided by the potential buyer, usually through a conversation or an online form. At this point, credit has not been checked, income verified, or debt levels analyzed. This is the weakest form of verification that someone will qualify for a loan.

The next step is a pre-approval. Pre-approvals are important but not the final word. The biggest difference is that credit, income, and debt levels have all been verified. The mortgage representative has provided a mortgage amount based on calculations using the information acquired in the "search." Without some sort of written approval, I would be wary.

As a seller, I would insist on some sort of documentation from a reputable lender to help determine the likelihood of the buyer's ability to secure financing. In addition, when I represent the seller, I insist on seeing the REBNY (Real Estate Board of NY) financial profile for the buyer which outlines income, assets, liabilities, etc so that I can also qualify the buyer's financial state.

Remember that neither a pre-qualification nor a pre-approval is the final word. I see that you're not only a seller but also a buyer. Most buyers today are insisting on a mortgage contingency clause be added to the contract. In short, this clause means that the buyer can terminate the contract if he cannot get a mortgage commitment. It is a wise protection to add for the buyer. As an attorney representing a seller, oftentimes a deadline is imposed with the clause.

Feel free to reach out to me if you have any further questions.

Regards,

John R. Wuertz
Vice President, Associate Broker
The Corcoran Group
212-605-9377
2 votes Thank Flag Link Wed Feb 10, 2010
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1 vote Thank Flag Link Tue Feb 16, 2010
Hello Hb54321,

My answer to this question is always the same. Only accept an offer contingent upon receipt of a pre-approval letter from a reputable lender within X amount of days. You and/or your Realtor decide the time period. My experience has been that ready and willing buyers comply promptly. It's a win win for everyone. As for how long the letters are good for? That will depend upon the lender and their policies and procedures. Best of luck.

Regards,
Michelle Doscher
Web Reference: http://MichelleDoscher.mobi
1 vote Thank Flag Link Tue Feb 16, 2010
Also while an owner may resond to an initial offer any further negotiation would require a financial statement. HTe thought an owner will say, "Tehy have more--lets get it" is silly at best. I would advise my owner not to negotiate without one. It is how you evaluate an offer based oin the requirements of a particular building, and it is why REBNY provides us a srtandard form to do it on. For my direct customers I advise them to speak to a Mortgage Broker before making any offers--any buyer not willing to do so is simply not serious
1 vote Thank Flag Link Fri Feb 12, 2010
Hi,

These days a mortgage pre-approval letter is critical to have when making an offer. If you do not have one, you should not even make an offer, because most sellers will not even probably look at it.

For more information on buying a home feel free to visit my blog at:
http://www.mdjustlisted.com/blog/
1 vote Thank Flag Link Thu Feb 11, 2010
A pre-approval letter is very important. It helps you answer many questions in regards to the strength of financing between different buyers. The letter shows you what bank the buyer is working with. Working with a strong bank in regards to mortgages in this current climate can make a large difference. The buyer should also identify what type of mortgage they are looking for. An FHA mortgage can require certain conditions on the home that a conventional mortgage may not.
0 votes Thank Flag Link Fri Feb 19, 2010
It is extremely important it sets you apart from other buyers and if in a competing situation for the home puts you ahead of the other buyer
0 votes Thank Flag Link Tue Feb 16, 2010
Most real estate professionals agree it's smart to advise buyers to become preapproved by their lender, not just prequalified. When buyers obtain a bona fide preapproval, they must submit a loan application with necessary documentation and fee. After the lender verifies the information provided the buyer is informed of how much money the buyer can afford to borrow. Supplied with that information, the buyer can confidently go home shopping.
Prequalifications are only an estimate of what a buyer can afford based on unverified information. A buyer who assumes that this estimate is accurate and chooses a home based on the information may, in fact, be denied a loan when he/she actually applies. That results in a situation that wastes his/her time and can put a seller in a bad position if they've already turned away a qualified buyer. So there is a difference between the two.
Web Reference: http://www.clovelake.com
0 votes Thank Flag Link Tue Feb 16, 2010
A pre-approval letter is so very important because it says that a mortgage company has previewed the customers financials and is willing to entertain them as real borrowers. Its important to remember here that not only is the pre-approval important but equally important is the potential lender and for the pre-approval to state that the the persons credit has been looked at. In todays market we see so many people try to get the best deal and dont always choose the most reputable lenders, so be sure the lender is also reviewed.
0 votes Thank Flag Link Tue Feb 16, 2010
In Northeast OH (the Greater Cleveland Area), a Seller will not accept a Purchase Agreement without a Pre-Approval Letter. And, a Prequalification Letter is worthless, because the Buyer's information has not been validated, Credit Reports have not been reviewed, Credit Score has not been accessed, etc.
0 votes Thank Flag Link Tue Feb 16, 2010
The days of a Pre-Approval letter are gone, they do not hold much water in today's market conditions. When you are able to get a Commitment letter from a Bank,or Lender, then you have the power that you need in negotiating the sale of the property. Almost anyone, regardless of their credit can obtain a pre-approval letter,
the key is the Commitment letter. Good Luck ! You can visit my website @ http://www.HamptonsHomes4Sale.com
I am a full time Realtor,and a full time resident in the Hamptons for 15 years. Deal only with local professionals, you will be pleased with the results.
0 votes Thank Flag Link Tue Feb 16, 2010
While a pre-approval letter (or LSR) from a lender is not a guarantee that the buyer will indeed be able to obtain the loan, it does help prove that a lender believes the buyer has the potential to obtain the loan he/she is seeking based on the information the buyer gave the lender.

I always suggest my buyers' get pre-qualified before they make an offer on a home because it makes their offer much stronger. If I represent the seller, I always look to see if the buyer is pre-qualified.

I am a Realtor in Flagstaff, AZ and our purchase contract requires a LSR (Loan status report) from a lender be attached to the contract. Our LSR is similar to a lender's per-approval letter. If they buyers are not pre-approved, I would make sure the contract requires the buyer to get pre-approved within a few days. If they fail to get a pre-approved within the stated time frame, the sellers’s should have the right to cancel the contract.

Douglas Fuller, Realtor, GRI, ABR, e-Pro
Certified Relocation Specialist
Prudential Northern Arizona Real Estate
http://www.DouglasFuller.com
(928) 607-0242
0 votes Thank Flag Link Tue Feb 16, 2010
Hi Hb. Based on your own words, you're selling a coop. What I don't get is why you're second guessing your broker in this forum. It seems that you are somewhat distrustful of your own listing agent.

Hb wrote:
"My broker is encouraging me to make a deal first, come to a number, then ask them to get a pre-approval letter. ...If the buyer can't get a pre-approval or if we can't come to terms for a contract, then my broker knows how low I'm willing to go?"

Your broker should know what you wanted by way of price before you guys signed an exclusive contract. He represents you and should know what your bottom line is. You also answer your own question about the importance of the pre-a in the second part of the paraphrased question above.

Whatever offers you may receive, make any acceptance contingent upon review of a letter of Pre-A, financial documents and credit check.
0 votes Thank Flag Link Fri Feb 12, 2010
Preapproval is a tool, but not nearly as valuable as some might think, it means a buyer has spoken to a bank/mortgage broker discussing their finnaces and based on that discussion the banker/broker has issued an opinion. THe information given has not usualy been verified and no credit has been run. So hopefully a buyer has been honest so they would get an honest appriasal of their borrowng ability. THat is wherethe value lies.
0 votes Thank Flag Link Fri Feb 12, 2010
Thanks Robin, I know many mortgage bankers and brokers in NY that I work with that know what they are doing. I also know when a buyer that has bought several properties with me is qualified. They have a banker. I know how much cash they have and their income and assets. No jumbo, no bonuses, small conforming mortgage.

If you read my answer, I said until we agreed on a price. Offers, counters and accepted offers don't actually mean anything in NY. Neither party has any obligation until a contract is signed. In fact after the offer was accepted another offer came in above ask. If you read my first answer, the buyer's qualification is not always the problem. Lenders are having issues with buildings these days.

A buyer can be at a disadvantage during negotiations if the seller and their broker knows how much money the buyer has. You know how many times I've heard "what's another $50,000 -$100,000" they can afford it"

I wear two different hats when I represent sellers and when I represent buyers. There is never a one size fits all in real estate.
0 votes Thank Flag Link Fri Feb 12, 2010
Mitchell Hall, Real Estate Pro in New York, NY
MVP'08
Contact
And one more thing:

Has your agent seen their financials (REBNY financial profile and/or bank/investment statements)? Has he made certain that they are able to pass the Board's requirements on a financial basis? Boards are scrutinizing financials more than ever, in an effort to protect the building/tenants. Why bother going through the motions before seeing this information?!
0 votes Thank Flag Link Fri Feb 12, 2010
Mitchell, you may assume that just because your buyer qualified before, and are putting more than 50% down that they will qualify again is the one flaw in your reasoning. There are a lot of "ifs" here. Did they qualify with full documentation at that time? Are their credit scores the same? Do they need a true jumbo loan, but they rely heavily on bonus income? Most of the jumbo lenders in NY are not allowing all of the bonus income to be used, even if they just received a bonus in January. I just reviewed everyone's bonus guidelines in trying to qualify a buyer for a $1.2 million co-op loan on a $2 million property. It is not a slam dunk like it used to be.
Also, even when people are re-financing their co-op loans they have to put in a full board package. There is no guarantee there either.
So yes, in my mind, a pre-approval letter from someone who really knows what they are doing is important.
0 votes Thank Flag Link Fri Feb 12, 2010
HB,

I have to agree with John. I would agree with your broker only if he or she knows the buyer's broker and trusts the broker that he/she would only be working with a qualified buyer.

I recently worked with a buyer that did not want to disclose all their financials until a sale price was agreed upon. However, they were putting down more than 50% cash down, I knew their approx net worth and income. The other broker trusted me,

My buyers recently sold their apartment in the same building and were upgrading. I originally sold them the apartment and sold it for them again. They were qualified. They passed the coop board once before. However, If required I could have obtained a pre-approval letter and documents substantiating income and assets within a few hours.

Your broker and attorney work for you.

Mitchell Hall
Associate Broker
The Corcoran Group
917-312-0924
mhall@corcoran.com
0 votes Thank Flag Link Fri Feb 12, 2010
Mitchell Hall, Real Estate Pro in New York, NY
MVP'08
Contact
GREAT QUESTION:

Those letter issued by lender are good for approx. 60 days from date issued.

Statements are important based on info. supplied by mortgage broker how far along the buyer is in approval stages. SOME of national banks I have to question however I can't list their names on a web due to liability issues of negative comments. When I see those letters we determine as a Realtor who represent seller if we will accept the sales offer.

Lynn911

PS listing agent can assist you
Web Reference: http://www.lynn911.com
0 votes Thank Flag Link Fri Feb 12, 2010
HB,

Negotiating an offer doesn't de-value your property. However, negotiating with a potential buyer who can't offer some strength and a level of proof that they can actually secure financing de-values YOUR TIME. In my opinion, it would be a total waste of everyone's time to negotiate without a pre-approval. I'm surprised your broker/agent wouldn't require proof from the buyer's agent at the time the offer was submitted. In an effort to save time and protect my clients, I always ask for a pre-approval and/or the REBNY financial profile. Many people THINK they can get a loan but quickly learn that they can't once they get into the process. Whether the cause of decline is a blemish (actual or error) on their credit report, too much debt, etc, the requirements to get a loan are tougher now than in recent years. Many people simply don't qualify in today's lending environment.

Your attorney may not care about a pre-approval because it's not his time spent on the negotiating part initially. Further, if he's charging per activity rather than per transaction, the more work he does...the more he earns.

In the end, remember that your time is valuable. Don't waste it negotiating with someone without the pre-approval. If they're serious buyers, they should be waving the pre-approval around to prove they're ready, willing, and able purchasers. They're going to have to go through the approval process anyway. If they haven't started the process and IF they qualify, the fact they haven't started only means it will take them longer to buy anyway. The mortgage process is taking longer than in recent years. We're talking months instead of a few weeks. If they are real and qualified buyers, let them prove it. They should be ready and prepared to do that.

It worries me that the two people who are supposed to be working for and protecting you would be willing to let this slip.

I'm also concerned that you mentioned that your agent would "know how low [you'd be] willing to go." Although I don't ask my clients up front their bottom line, an agent oftentimes learns that when they start negotiating offers (if there are more than one). However, each offer is different. While you may not want to accept an offer at a certain price with 80% financing and weak financials, you may be willing to accept a lower purchase price if the buyer is only financing 50% and more money in the bank. I always encourage my clients to evaluate each offer on its own merit. Sometimes it's the parameters more than price that can affect the attractiveness of an offer.

Protect yourself and remember the value of your time.

Respectfully,

John R. Wuertz
Vice President, Associate Broker
The Corcoran Group
212-605-9377

ps. I know my answer includes some assumptions; but, your follow up questions/comments raise some real concerns about the effectiveness of the people "in your corner."
0 votes Thank Flag Link Fri Feb 12, 2010
These answers are all very helpful, thanks. My broker and also my lawyer are of the opinion that a pre-approval letter is not that worthwhile. I'm currently selling to answer that question. My broker is encouraging me to make a deal first, come to a number, then ask them to get a pre-approval letter. Next question -- if I go this route, then doesn't it devalue my co-op, and if the buyer can't get a pre-approval or if we can't come to terms for a contract, then my broker knows how low I'm willing to go?

Does anyone have any negotiating advice for this type of situation?
0 votes Thank Flag Link Fri Feb 12, 2010
Hi Hb. A letter of pre-approval is a crucial aspect of a serious offer. Unlike a pre-qualification, the pre-A requires the potential borrower to show income, assets and have a credit check done. No loan comittment has been locked in and the letter may be good for 90 days.

The only was to evaluate an offer is to have the pre-a as well as documents showing financial means.
0 votes Thank Flag Link Thu Feb 11, 2010
Correction:

Pre approval means the buyer has started the loan process and the lender just needs some additional information to complete the loan.

Pre qualification is based on information the buyer has told the lender. Nothing or very little has been verified.
0 votes Thank Flag Link Thu Feb 11, 2010
Robert 10001,

You're right, I did say it backwards the second time. My bad. Thanks for pointing it out in such a nice manner.
0 votes Thank Flag Link Thu Feb 11, 2010
Hi Both Buyer and Seller,
A pre-approval letter is extremely important. To obtain the pre-approval, the borrower(s) must submit all pertinent income and asset documentation. A FICO credit report must be obtained and analyzed by the loan officer(MLO). Most MLO's usually run the borrower(s) information through a desk-top underwriting process.
Only then is a pre-approval issued. This letter will give you guidance as to how much your buyer can afford.

My recommendation to you is to obtain the same document for youself before you sell. You want to make sure that you will not have any suprises when you want to make an offer for your new home. You may get caught in a difficult situation.

The reason is simple, many of us have common names or have dealt with a telecommunication company that sent out a collection notice if you cancelled a contract and paid their bill. These companies do this even if you are still a customer and maintain other contracts with them. We have this situation now and our credit score dropped more than 100 points. Their error has not been corrected after numerous letters, calls and proof of payment. If we needed a mortgage at this point in time, it could cost us more to obtain.

You can contact me for more details.

Chris Christie (chriscmps@gmail.com)
0 votes Thank Flag Link Thu Feb 11, 2010
Hb54321,

Hi, I just answered one of your other questions a moment ago. I feel like I already know you a little. You are asking great questions.

As everyone below tells you, the very least you want is that the buyer must absolutely have been pre-approved by a lender. If anyone refuses to do this first, they are not serious. It is your only way of knowing there is some likelihood they can get a mortgage. But I would ask for more than that. You definitely want to know how much they have to put down, and what debt to income ratio they will have on this property. These are crucial too.

In the other question I just answered, you were referring to a co-op. Debt to income ratio and liquid assets left in the bank after purchase are crucial to a co-op board. I am wondering if you are perhaps a For Sale by Owner? I am asking because your listing agent should be excellent at prequalifying any buyer. That takes experience, and if you are selling on your own not having this experience is one of the many things stacked against you (others being the scope of marketing you can do, negotiation experience, etc).

I admire that you are asking all the right questions. I also hope you use an experienced and knowledgable agent on both the sale of your current property and the purchase of the next. These are very large and important transactions and you ought to have the best representation possible in each.

Best,

Jenet Levy
Halstead Property, LLC
jlevy@halstead.com
212 381-4268
http://jenetlevy.halstead.com
0 votes Thank Flag Link Thu Feb 11, 2010
As normally happens here, some of the answers are correct, and some are wrong, and it is also a matter of semantics. One important thing here is where did this pre-approval or pre-qualification come from? Does your agent know the person who gave it, or is it from some un-known mortgage broker or banker who will put their name on anything, throw it up against a wall, and see what sticks? Any of the real estate agents I work with know that I will not put my name on a pre-qualification letter without running credit, and if I have any questions about income, I ask to see tax returns. Once you have been in this business long enough, when you ask a buyer what their income is, and what they do for a living, you can probably ask the second question first, and know the answer. If we pay attention to anything these days, we also know to ask if they have any un-reimbursed expenses that they deduct, because this can increase the debt ratio and disqualify a buyers once the 4506 is pulled (Tax returns from the IRS).
Because guidelines are changing so rapidly now, I would also not go with a pre-qual that is not currently dated. I would rather type up a new letter than to let someone give a letter with my name on it that is old, when it is entirely possible that they no longer qualify.
0 votes Thank Flag Link Thu Feb 11, 2010
They are extremely important, but it depends on who is writing the letter.

I represented a seller who had not one, but two mortgage brokers promise in writing that the buyers financials were fine and they could indeed get a mortgage. It turned out that one missed a very important piece of information that was easily available, and the other swore "it would not be a problem". The buyer could not get the mortgage and my seller was in a very difficult predicament.

On my recommendation, the seller now requires that all buyers wanting to make an offer are pre-approved by a mortgage broker the seller and I can trust. The buyer is then free to choose any lender or broker he wants to use, but the seller has a little more comfort in accepting the offer.

Once a seller accepts and offer and goes into contract, that property is locked up indefinately. You can never guarantee that the deal will go forward (heck, if the buyer runs out and buys a new car before closing, that may kill the deal for sure), but you need to take reasonable measures and do your due diligence.
0 votes Thank Flag Link Thu Feb 11, 2010
A pre approval or a pre qualification are an absolute must in considering any offer. This tells you the buyer is serious enough to check out if he/she can afford your home.Otherwise he/she may be just shopping and dreaming. As a listing agent, I make sure to call the mortgage person and ask many questions. This however, is not a guarantee, the buyer will be approved for the loan. The type of loan, whether their offer is contingent on the sale of another home, and how much down payment are also, very important to consider, when accepting an offer.
0 votes Thank Flag Link Thu Feb 11, 2010
Hi Hb54321,

In addition to making sure the buyer is qualified to purchase your property, as a seller you should also make sure that your property is pre-approved for a mortgage or a coop loan.

A buyer pre-approval only approves the buyer based on their financials and credit score but not a specific property. Even an actual loan commitment still requires certain contingencies to be met concerning the apartment and building. The buyer may be qualified for a loan with a particular lender but that lender might not lend in your building.

Make sure there are no financing issues with your building such as many non owner occupied investor units, renters, sponsor units, insurance etc. . If you are selling a coop you also want to make sure the buyer is qualified to pass your board.

Feel free to contact me if I can be of any help. Good Luck!

Mitchell Hall
Associate Broker
The Corcoran Group
2253 Broadway
New York, NY 10024
917-312-0924
mhall@corcoran.com
0 votes Thank Flag Link Wed Feb 10, 2010
Mitchell Hall, Real Estate Pro in New York, NY
MVP'08
Contact
Hb,

Not all the answers are right. Be careful who ya listen to.
Jenny A Le. most lenders don't take your ss# for a pre qual. pre quals come in the mail all the time as junk mail. I got a pre qual from my morgage broker just from telling him my salary and my credit card bill payment.

And Patrick, you got it backwards. good luck to your clients. your first answer said 1 thing in 1 sentence and something else in the next. your 2nd answer was just plain backward.

Both Johns gave good answers that are also right answers.
0 votes Thank Flag Link Wed Feb 10, 2010
Well, actually, there is a big difference between a pre-Approval vs. a pre-Qualification.

For a pre-Qualification, the lender only pull a credit profile and if the FICO score meets their guidelines, a pre-Qual letter is provided to the buyer. A thorough credit review of the buyer is NOT completed yet.

For a pre-Approval, the lender pulls a credit profile, review tax returns, verify recent pay stubs with verification of employment, review rrecent bank statements for proof of funds, etc. Then, the lender provides a pre-Approval letter with very minimal conditions (a purchase contract, a certified appraisal, and title policy) for final loan approval.
0 votes Thank Flag Link Wed Feb 10, 2010
A mortgage pre-approval letter is very important especially today due to the instability of the current real estate market. When a seller accepts an offer from a buyer, he or she takes their home off the market for up to 6 weeks while he waits for a formal loan commitment. Once off the market, that seller could miss a truly qualified buyer whose offer might even be higher than the earlier accepted offer. The real estate listing agent owes allegiance to the seller and needs to make sure that the potential buyer's finances are strong enough to insure a closing two to four months later. A mortgage pre-approval letter at least gives some assurance that the buyer's credit has been checked as well as some income verification too. There is a letter called a prequalification letter given by a mortgage officer which has less value than a mortgage pre-approval letter.
0 votes Thank Flag Link Wed Feb 10, 2010
Pre qualification means the buyer has started the loan process and the lender just needs some additional information to complete the loan.

Pre approval is based on information the buyer has told the lender. Nothing or very little has been verified.
0 votes Thank Flag Link Wed Feb 10, 2010
If the pre-approval letter says it would lend up to X% loan to value, or X% of appraised value, then this means the buyer would have to come in with a down payment.

So to make sure the buyers could walk their talk AND pull the trigger, I would suggest that you also require a copy of a recent bank statement to show proof of funds for the down payment and funds for closing costs.
0 votes Thank Flag Link Wed Feb 10, 2010
Pre-approval for a specific loan is very important. Pre qualification or pre approval on a general basis, not so much.
0 votes Thank Flag Link Wed Feb 10, 2010
Extremely IMPORTANT... In this market, I do not know of a single seller who will take an offer without it. Too many others ready to step up to the plate that will have it.

Good Luck!!!
0 votes Thank Flag Link Wed Feb 10, 2010
What is the difference between a pre-approval and a pre-qualification letter?
0 votes Thank Flag Link Wed Feb 10, 2010
It's becoming more and more common for deals to fall apart due to financing. The pre approval shows more of a commitment on the part of the buyer and shows that the buyer is farther along in the loan process than a buyer with a pre qualification letter or none at all. However, the pre qual is not a quarantee the buyer will get their financing. The letters are usually good for 30 and sometimes 60 days.
0 votes Thank Flag Link Wed Feb 10, 2010
Also, pre-approval letters are usually good for up to 90 days.
0 votes Thank Flag Link Wed Feb 10, 2010
Very important! You want to make sure that the Buyer can walk their talk and aren't wasting your time or worse, costing you an offer from a valid buyer.
0 votes Thank Flag Link Wed Feb 10, 2010
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