Why You Need a Preapproval Letter!
The other day someone who is renting asked me what would happen if they submitted an offer on one of my listings without a preapproval letter. They said they are in the proccess of applying to be preapproved, but had not submitted all the necessary paperwork.
I answered that the seller would not respond to the offer until we received the preapproval letter. The person asking seemed surprised by my answer.
Here's why you need to submit a preapproval letter with your offer:
1. Getting preapproved by a lender means that the lender has checked your credit, looked at your recent pay stubs, W-2, and recent tax return among other possible documents and determined how much money they are willing to lend you money. This gives you important information as a buyer. Now you can determine how much you can spend on a house, and how much of a down payment you will need.
2. Without a preapproval letter, a seller has no information that indicates you are financially able to buy their home.
Part of the documentation that accompanies an Offer to Purchase in Massachusetts is a statement that the buyer will receive a Mortgage Commitment by a certain date. If the buyer does not have a preapproval, the lender has to start the process of verifying financial information when the buyer first applies for a mortgage. This creates even more uncertainty for sellers who have now accepted an offer and taken their home off the market while they wait to find out if the buyer is approved for the mortgage.
3. This particular listing is a short sale. Even if a seller agreed to accept an offer without a preapproval letter, there is no way the bank holding the seller's mortgage will accept the offer. They are already in a situation where they will potentially not recover the money owed to them by the seller. They will not put themselves in a situation of approving the sale to a buyer who does not have the financial confirmation to buy the house.
Another potential buyer called me today and when I asked I he was preapproved told me he wanted to wait until he saw the house. I explained why it was important to start the process before looking at houses. He assured me that it would not be a problem for him to get a preapproval letter, and that they could also pay cash. I responded that even in that case, he would still need a letter from his bank showing that the money was available.
If you want to buy a house, the very first thing you need to do is get a preapproval letter from a reputable lender. If you are planning to pay cash for a house, then get a letter from your bank that shows you have the funds available. This puts you, the buyer, in a position of financial strength, and tells the seller you are able to buy their home.
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