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5FT8 Real Es…,  in Massachusetts

Can a pre-approval letter HURT you if your offer is much less than what you are approved for?

Asked by 5FT8 Real Estate, Massachusetts Tue Mar 18, 2008

We are interested in making an offer on a home. We are approved for a certain amount and are offering far less. I'm concerned that if the sellers see what we are approved for, they won't even LOOK at our offer without immediately countering. Any thoughts?

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17
Eric West’s answer
I will keep this short and sweet.
When I am working with a lender and buyer, I have the lender make the approval apply to a specific property location with no mention of a price on it. It simply states that “buyer” is approved to purchase the property located at “x”.
3 votes Thank Flag Link Tue Mar 25, 2008
Hi Maryann:

I am with Elvis, I usually send in an approval letter that's exactly to the amount offered. . I also don't put in the address of the house on the pre-approval letter. .

A lot of times a buyer can be pre-approved for so much more than what they are willing to offer, or more importantly, the amount of mortgage payment they are comfortable of living with after all is said and done. There is no sense of letting sellers know you are able to pay more. As far as whether you will lose a house because the pre-approval might not be as high as the sellers want to counter, I don't think that's a big risk either - if they want to counter, they will go ahead and counter back and let you provide a new pre-approval letter if amunt is much different than what the pre-approval letter says.

Good luck!
Sylvia
3 votes Thank Flag Link Tue Mar 18, 2008
Sylvia Barry,…, Real Estate Pro in Marin, CA
MVP'08
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While all good answers, I completely agree with Elvis & Options Real Estate. I do the financing & pre-approvals and always talk with both buyer & agent about how much to have on the pre-approval letter. Sometimes I'll be asked to send over a couple pre-approval letters to the agent to have on hand in case they need to negotiate the price. Most of the time the buyer does qualify for much more than they are offering and I agree that you want to keep your cards close to your chest when it comes to negotiating. Great question Maryann!!
3 votes Thank Flag Link Tue Mar 18, 2008
In my opinion, it's always better to have the pre-approval letter specifically tailored to meet the property being offered-on. While Deborah is correct, just because you're approved for $500,000 doesn't mean you should spend it all, the sellers tend to look at the $500,000 pre-approval, and the buyer's offer of $350,000 on the property that's selling for $395,000 and they may say to themselves... "they can afford more, so let's negotiate really hard, and stand firm... they can afford to increase their offer".

If the preapproval states $363,000, they're much less likely to "Stonewall" on negotiations, as they have no idea that you're approved for substantially more.

The purpose of the preapproval is to show the seller that you will be approved by your lender to purchase the property in question. There's no reason to show the seller anything more than that. Hold your cards close to your chest.
3 votes Thank Flag Link Tue Mar 18, 2008
Alan May, Real Estate Pro in Evanston, IL
MVP'08
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Contact your lender and let them know that you have located the home that you want to purchase and the amount of your offer and ask for an approval stating that amount as the purchase price and preferably include the property address, the Seller will way the approval that much more heavily when they see their address on the approval letter. All the Seller needs to know is that you can afford to purchase their home at the price you have offered. Good Luck!!
2 votes Thank Flag Link Fri May 23, 2008
Hello Maryann. When I represent the buyer, I always make sure the approval letter matches the offer. The seller does not need to know that you are approved for more. This is especially true when I am dealing with a short sale offer that requires lender approval. Sellers are only human. They'll be more inclined to counter on the price when they know that the buyer could pay more. Of course there are limits to that too since the house still has to appraise for the purchase price. In summary, if I were you, I'd definitely customize the approval letter to match the offer. Good luck.
2 votes Thank Flag Link Tue Mar 18, 2008
Ute Ferdig -…, Real Estate Pro in New Castle, DE
MVP'08
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Hi Maryann,

Usually if you have a good relationship with your mortgage originator, he or she will give you a pre-qualification letter or pre-approval letter for the specific house you are focussed on or the exact amount of money you are offering.

For those "sellers" who may be reading this, the pre-qual letter you may have received with your buyer's offer may NOT be for the full amount that individual can afford.

This is an excellent question--because it deals with negotiation strategy. Thanks for the opportunity to address this important topic.

Dane
2 votes Thank Flag Link Tue Mar 18, 2008
Maryann, excellent question- alerting sellers as to your maximum is a bad idea. If you can have your lender provide you with a letter that is specific to your offer price, rather than wide open, you're less likely to have a seller that feels comfortable countering with a higher price. If your offer is rejected, you can always resubmit with a higher price within your comfort level. Your lender should be fine with sending out a letter specific to the offer, even if it entails changing the amount to work with a few offers. There's no need for your sellers to have awareness of the maximum that you qualify for- their interest will be that you qualify for the amount offered on their specific property.
Web Reference: http://optionsrealty.com
2 votes Thank Flag Link Tue Mar 18, 2008
Always have your lender print out a pre-approval for the exact amount of the offer (with specific property address). YES, disclosing unneccessarily that you are pre-approved for a higher sales price/loan payment will jepordize your negotiating position. Every Realtor knows this.
1 vote Thank Flag Link Mon Mar 24, 2008
I like having at least two approval letters for my buyer clients - one without the amount and one with. It's more important that the letter address the specific home for which the buyer has been pre-approved. The market, not the amount approved for a loan, determines if the offer is on the mark.
Web Reference: http://www.joannco.com
1 vote Thank Flag Link Tue Mar 18, 2008
1st Time Buyer,

You are 100% correct, you don't want to tell the seller that you can pay more when you don't intend to. We always have the pre-approval letter written to agree with the purchase price offered. Many times you end up getting more than one letter, depending on the negotiations go.

Good Luck!
0 votes Thank Flag Link Fri Mar 9, 2012
Hello a lot of good information, Pre-Approval in New England is what gets the offer accepted. The Pre-Approval not pre-qualified ( anyone can get pre-qualified ) letter should be for your offer that makes sense to protect yourself. The media is doing a major dis-service to both the Buyer and Sellers about its a buyers market, it all depends on the areas of the country, both buyers and sellers should do some homework and work in collaboration with their relator...being an educated consumer is very critical these days, Best of Luck
0 votes Thank Flag Link Thu Jun 19, 2008
Hi Maryann:

I always ask for a pre-approval letter from the mortgage broker for the specific house with the specific amount my client will be offering; preferrably with the specific terms my clients have been approved for to make sure when they get the loan, they will be able to afford that specific loan; and for the sellers to know that the loan they are requesting is reasonable. .

Sylvia
0 votes Thank Flag Link Wed Jun 4, 2008
Sylvia Barry,…, Real Estate Pro in Marin, CA
MVP'08
Contact
Hi Maryann,

Usually if you have a good relationship with your mortgage originator, he or she will give you a pre-qualification letter or pre-approval letter for the specific house you are focussed on or the exact amount of money you are offering.

For those "sellers" who may be reading this, the pre-qual letter you may have received with your buyer's offer may NOT be for the full amount that individual can afford.

This is an excellent question--because it deals with negotiation strategy. Thanks for the opportunity to address this important topic.

Dane
0 votes Thank Flag Link Wed Jun 4, 2008
Hi Maryann,

One thing has nothing to do with the other. One's approval to a higher amount than the offer only makes you more of a solid buyer than otherwise. Offers are always negotiable. If I am representing the seller i encourage them to respond to all offers. I have been on both sides of the transaction with approval letters higher than the offers and as i said it only made the offer more solid. Good luck!
Leonardo.
Web Reference: http://www.leonardoteam.com
0 votes Thank Flag Link Fri May 23, 2008
While it is much better to have the approval reflect exactly your offer, I don't see it as detrimental to your position. Many buyer are not stretching to their maximum, and that is a good thing. Becasue you can afford more does not mean that you should spend more. I had an offer recently from a buyer who could not squeeze one dollar more. That makes the thought of entering a transaction sound red alerts that it is so tight, it may not close. That circumstance is far more of a flag than yours.

It still remains preferable to submit an approval or prequal that specifies the address and the exact amount of the loan as reflected in the offer.
0 votes Thank Flag Link Tue Mar 18, 2008
Deborah Madey, Real Estate Pro in Brick, NJ
MVP'08
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Maryann,
Your lender and realtor should advise you that when placing an offer you should have a property specific preapproval letter. That means if you are buying 123 Main Street in Hampton the letter should state that.
Visit my website for helpful tips http://www.RonHomes.com
Web Reference: http://www.RonHomes.com
0 votes Thank Flag Link Tue Mar 18, 2008
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