Pre-Approval Letters, Are They Helping or Hurting You?

When you present your preapproval letter to the listing agent does it help, or hinder your chances of getting an accepted offer? Financing preapproval letters are widely dismissed by the real estate industry as not being worth the paper they are written on. The reason is there are no consequences for the loan officer who issues a preapproval letter and is unable to follow it up with a full approval. It's especially true in this market when underwriters (the people who actually approve your loan) are under strict scrutiny and are nitpicking every detail of every potential loan looking for potential problems.

This is also the result of earlier years when loan officers were disinclined to spend allot of time getting initial approvals and would produce letters like flyer's knowing some would stick. I'm not throwing good loan officers under the bus here. This was a market reality born from too many poor loan officers and fickle buyers who would drop you for a $20 difference in closing costs.

Here is the verbiage from a B of A Approval letter;

Not too inspiring. My first reaction as a listing agent was B of A? I have the unfortunate task of dealing with them daily on short sales. I recovered from the initial reaction and had a few questions.

1. Did the buyer actually make a loan application?
2. Has the credit been pulled and reviewed?
3. Have they provided bank statements and other required documentation?
4. Has the buyer provided income verification yet?
5. Do they actually have a loan program picked out yet?
6. Do they actually meet the underwriting guidelines for that loan program now?
7. Has an underwriter actually looked at the file or has the loan officer talked to an underwriter regarding this file.

This example instills no confidence that anything has been done beyond a phone interview from a too big to care banks call center. It's not really worth the paper it was written on.

In order for your pre-approval to have some weight have your loan officer include the following elements;

1. A statement that loan application has actually been made.
2. Income documentation has been provided and reviewed.
3. Asset documentation has been provided and reviewed.
4. Credit has been pulled and reviewed.
5. Based upon the provided documentation the borrower meets the underwriting guidelines for the FHA/VA/Conventional loan program selected.
6. There are no outstanding issues that would prevent the borrower from obtaining a loan (like a bankruptcy).

The typical disclaimers are going to follow but at least the listing agent reviewing the letter knows the buyer has actually met with the loan officer and brought bank statements, pay stubs and other basic documentation in for review. It is more of a hassle for the borrower to provide this information but it demonstrates they are more serious, committed and thoughtful about what they are doing. In the current real estate and lending market this carries allot of weight with regards to how your offer is viewed.

If you really want to have your letter seriously considered have a well known, veteran loan officer take your application and put their name to the letter. Bringing in a computer generated pre-approval letter from some online lender is not going to help your offer get accepted and suggests to the listing agent that you are not serious, possibly flighty, and probably have qualification issues. You may not, but history suggests there is a probability that you do.

If you really want to get a great deal in this buyers market take the time to sit down with a great loan officer and thoroughly review your financing options BEFORE you go out and tie up a property. Take the time to provide them every thing they need to really preapprove you. Your time and energy will be well spent. You will be more confident and capable and the seller who's house you are buying will have more confidence in you as well. That alone should help you get a better deal. Even in this market....especially in this market, well qualified buyers have a distinct advantage over their competition. In my market the best properties are still getting multiple offers and preference goes to the best qualified buyers.

Are you thinking of buying? Call me and I will set you up with a great loan officer that will be an asset to your offer and go the extra mile thoughout the transaction.