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.
John R. Wuertz
Vice President, Associate Broker
The Corcoran Group
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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.
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:
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.
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.
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 sellersâ€™s should have the right to cancel the contract.
Douglas Fuller, Realtor, GRI, ABR, e-Pro
Certified Relocation Specialist
Prudential Northern Arizona Real Estate
"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.
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.
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?!
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.
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.
The Corcoran Group
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.
PS listing agent can assist you
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.
John R. Wuertz
Vice President, Associate Broker
The Corcoran Group
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."
Does anyone have any negotiating advice for this type of situation?
The only was to evaluate an offer is to have the pre-a as well as documents showing financial means.
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.
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 (firstname.lastname@example.org)
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.
Halstead Property, LLC
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.
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.
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!
The Corcoran Group
New York, NY 10024
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.
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.
Pre approval is based on information the buyer has told the lender. Nothing or very little has been verified.
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.