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I got "pre-qualified" for a mortgage by a well-known bank, and the pre-qualification letter specifically says that my credit report was pulled.
But the same letter says that I can get a "conditional pre-approval", and my agent tells me that most sellers will not sign a contract with just a "pre-qualified" buyer, but require mortage pre-approval.
The several people I know who bought homes recently told me their "pre-***" letter was only based on their credit report and verbal description of their financial situation, exactly what I did for my "pre-qualification".
So the question: how common is it to sign a contract with only "pre-qualification"? Do sellers really require "pre-approval"?
You can get some sellers to go to contract without a preapproval.
But, that preapproval is to protect YOU as much as the seller, and to get you farther down the path to closing a loan.
Since loan processing and underwriting are the major influencing factors in the transaction timeline, you can benefit from having a complete file, ready for underwriting.
Do it up right and all you will need is a contract and an appraisal, and you can close in a few weeks.
I would go with what your agent says as real estate practices are very local. Personally, I wouldn't ever advise a seller client to accept an offer based on a pre-qualification letter. While my personal belief is that these letters are worth as much as so much toilet paper, at least I know with a pre-approval the lender has dug a little deeper into your financial sitauation in order to pre-approve you. Typically with a pre-approval you'll need to submit paystubs, bank statements, etc.
Most mortgage professionals and real estate agents want the same thing, but say something different. What you're needing is your credit pulled with paperwork turned in like bank statments, tax returns, W2's etc. Even with that, some will still call it a pre-qual. I don't care what word the mortgage person uses on the letter, but I always make the call to see what process they've already done. If they've only pulled credit and talked with you, that's nothing, barely a pre-qual. But if they've received paperwork that helps to verify information verbally told to them, that's more of a pre-approval even if not gone through underwriting yet.
You need to figure out what actions they want from you in order to distinguish what word is associated. Bottom line, you can have a pre-qual letter and be just as far along in the process as some pre-approval letters. I require my buyers to turn in paperwork before we start the process. When I represent the seller, I speak to the mortgage person working with the buyer who submitted the offer, and if says he just pulled credit, I ask him to collect paperwork before my seller will respond.
Keep in mind the REASON for these letters. They help persuade the seller that your offer is a solid one and that you are likely to be able to follow through with the purchase. The stronger your letter the more likely a seller is to pick your offer over another or to come down to your price.
You'll want the pre-approval, its the stronger one. "conditional" probably just means, conditional on the fact that nothing major changes between the approval and the closing, like losing your job or something. My pre-approval was good for 90 days. I shopped within the range I was approved for. I provided all the documentation for the loan to get the pre-approval, when the time came for the offer all I needed was the earnest money and closed in like 20 days, it was very fast. It took longer then that to get the pre-approval.
You'll want the pre-approval, its the stronger one. "conditional" probably just means, conditional on the fact that nothing major changes between the approval and the closing, like losing your job or something. My pre-approval was good for 90 days. I shopped within the range I was approved for. I provided all the documentation for the loan to get the pre-approval, when the time came for the offer all I needed was the earnest money and closed in like 20 days, it was very fast. It took longer then that to get the pre-approval.
Pre-approval letters are usually conditional on multiple things. Some have to do with the potential borrower, but remember at the time the letter was drafted the lender probably didn't know what property was being bought either so many of the conditions have to do with the property as well. Even when lenders issue a mortgage commitment letter it's usually conditional on re-verification of assets/income and we usually get this letter just a couple weeks before closing.
pre-qualified basically means that given the information you supplied to the lender you would qualify for what ever loan program you applied for. But it doesn't mean than the information you gave them was verified or that you have given the bank supporting paperwork. Preapproved means that you have given the lender all your supporting paperwork your credit has been pulled and that the you have received an approval from the automated underwriting program for the loan program you have applied for. It basically mean unless something changes you will more than likely be able to close a loan for the loan amount you are preapproved for.
I got "pre-qualified" for a mortgage by a well-known bank, and the pre-qualification letter specifically says that my credit report was pulled.
But the same letter says that I can get a "conditional pre-approval", and my agent tells me that most sellers will not sign a contract with just a "pre-qualified" buyer, but require mortage pre-approval.
The several people I know who bought homes recently told me their "pre-***" letter was only based on their credit report and verbal description of their financial situation, exactly what I did for my "pre-qualification".
So the question: how common is it to sign a contract with only "pre-qualification"? Do sellers really require "pre-approval"?
Pre-qual vs pre-approval doesn't mean squat. Sellers are not requiring anything, this is made up by REAs. It is nothing more than their way of trying to ascertain your ability to pay as much as possible for that house. Here is why:
Most people get a pre-approval based on their maximum loan amount. Silly but true. First, the buyer agent uses this to steer (yes they do) buyers to the most expensive houses in range of the loan amount. Anyone not believing that is naive. Then the seller agent sees it and they know what you can pay. It gets worse, seller agents also represent that the seller wants to see bank records for savings, 401ks and everything else. From that they can pretty much tell exactly what you can afford to pay. You are toast. Any negotiating power you think you had is gone. The longer you are involved in looking, the more emotionally compromised you become. You get tired, your spouse gets tired. Or; you find a house and one of you "loves" it and has to have it. You are done if the buyer agent, seller agent and seller know how much you can afford.
If you have a sharp lender, they will issue a pre-qual letter to match your offer, and not a penny more. Every time you offer, new pre-qual letter.
Again, it isn't the sellers requirement, the real estate agents came up with this to allow them to control the buyer.
Tell me, do you see any sellers pre-qualifying the house for you to buy? Heck no and they would be stupid to do it too. But now you are supposed to do it for them? This isn't a one way street, buyer and seller are equal and only when you buy into the gibberish of the seller or buyer market mumbo jumbo are you not equal. It is a percentages thing. if a REA tells a buyer it is a seller's market, most people believe it, true or not. Why do you think we had that housing market disaster? Buyers were being told hurry hurry hurry and they did everything and anything to buy houses at insane prices. Who helped? You guessed it.
But reality is that a pre-qualification makes it easier. One thing though and this works for me, can't say if it will work for you. I never allow a seller agent to communicate with my lender before an offer is accepted. First, you are giving up all your leverage to a seller agent intent on extracting as much money from you as possible. That is their job. Never forget that. Next, I do not let a buyer agent (and sometimes I use them) talk to my lender before offer either. It is none of their business and guess what? That information almost always gets back to the seller agents. Maybe not on purpose but it gets there and thinking it doesn't put you in the naive category. Agents love to talk. They love to brag too. Give a sharp negotiator a few minutes with most agents (buyer or seller) and they will give out all the information you need. You see, most think they are very good and that is their pitfall. A frown when looking at a roof pitch or sloping floor followed by silence and the lips start flapping fast. Just listen.
Anyways, if pre-qualifications were such a good indicator of a buyers willingness or ability to buy, then why do so many houses fail to close? Make no mistake about it, the percentage of failures to close is very high indeed. Yeah, some REA will claim their buyers always close, uh huh.
This is why I say the entire REA industry (buyer and seller side) is geared to advantage the seller and they could really car less about the buyer. The buyer is only a revenue source. If it were otherwise, since the buyer is being vetted before an offer is accepted, then the house value should be vetted to the same standard, like an appraisal BEFORE offer.
Now here is one important thing to remember. When an agent tells you that they will not accept an offer without a pre-qualification (to show to seller) that is made up nonsense. A seller agent is obligated to receive all offers and then show them to seller.
You know what I do when some seller agent tells me that I can't submit without X, Y or Z? I say fine and contact the seller directly and complain. How do I get around a pre-offer pre-qual "requirement" Easy, I tell the seller (in the offer) that upon acceptance, I will provide a pre-qualification within one day of offer acceptance and I increase my EMD slightly. Instead of a minimum EMD I go above customary. That is money speaking, not some letter that means nothing.
To date, not one seller has ever refused. Why? They know as much as I do that the -pre-qual means nearly nothing because most of the times, purchases fail for reasons other than a pre-qual letter requirement.
What has happened though? Sellers making calls to seller agents to insure that this pre-qual letter nonsense doesn't get in the way of good offers. The only good offer is one that leads to a sale and a sale is rarely predicted by a pre-qual letter.
Location: Mokelumne Hill, CA & El Pescadero, BCS MX.
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Quote:
Originally Posted by Mack Knife
Again, it isn't the sellers requirement, the real estate agents came up with this to allow them to control the buyer.
Most private sellers don't require a pre-qual with the offer.
Banks absolutely require a pre-qual for REO properties and most agents in my neck of the woods will let the buyer know that they will have to produce something within a short period of time after an offer is accepted because it's built into the standard contract in CA.
I'm not sure how having a buyer get a pre-qual is allowing me to "control" the buyer. It's prudent for me representing a buyer to ask them if they have been pre-qualified and to find out for how much so we don't waste time looking at things they like but can't afford.
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