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I've looked at other threads on mortgage pre-approvals and it seems matter-of-fact that the buyers will submit a legitimate mortgage pre-approval document to the sellers before the contract signing.
Our buyers are going for a whopper of a mortgage (nearing seven figures) and yet, even as we get closer to contract signing, we have not received a pre-approval letter. More than a week ago, they sent along a pre-approval for a lesser amount on another house that they had considered buying. I have been asking our attorney and our real estate agent to see that we have the correct pre-approval document with a legitimate lender before we sign the contract. Our attorney seems to poo-poo this ("Pre-approval not worth the paper it's printed on, etc."), but I believe we need some written indication that these folks have a reasonable chance to get their mortgage. The real estate agent has indicated several times that the buyers may be "stretching" to purchase our home.
My position is that we do not sign the contract without this document. Any thoughts would be appreciated. My apologies if I am confusing "pre-approval" with "pre-qualification." Thanks.
While I agree that you should have a legitimate "pre-approval" along with the offer, you also must assess the situation. Is the offer a good one that you hate to turn away? Is the market robust enough that another offer may come your way quickly?
One option might be to stipulate that buyer apply for and receive approval for the correct loan amount within X (5-10 days) of acceptance or contract can be canceled by Seller. Perhaps you can afford to take it off the market for a few days. Many lenders will not accept a loan application and send the loan to underwriting without a valid contract, so it becomes a catch-22. Your attorney is correct that pre-approvals have no real teeth. But I am surprised your attorney has not suggested some contract language that protects you.
Do not underestimate the importance of having some form of proof that your buyer really can perform before taking your property off the market. I just closed on a house where the seller lost months and months and potential buyers while waiting for their international buyer to perform. I understand they were left waiting at the closing table four times before they gave up and eventually sold to my buyer. At the very least, if your MLS allows it, you might want to keep it active to take backups until you receive a loan commitment. I'd also ask for proof of funds to cover their down payment since it sounds like it will be substantial.
I agree with the comments regarding contract contingency for loan approval. If they already have something going for a lesser amount, it's nothing to revise the sales price and loan amount and refresh that pre-approval. I would push for credit pre-approval in in 10 days and full approval w/ appraisal in 21.
Definitely require a pre-approval letter and proof of funds when the contract is submitted. Otherwise, everyone is wasting your time. Legitimate, serious buyers should already know that this is industry standard.
Why doesn't your agent just call the lender on the pre-approval? Who cares about the piece of paper. Make a phone call and ask questions.
No disrespect, but that is not how it works. I hope you are only kidding. Without a written letter from the bank on their letterhead, a phone call to the lender is useless in regards to a pre-approval.
Thanks to all for your advice. We received the first page of a conditional approval letter from the buyers' lender, but I was surprised to see that their loan amount is now even higher that what was stated in the Offer to Purchase -- by about $50,000.
We are being told by our agent that, in our area, a proof of funds for the down payment is generally not requested for luxury homes and that the bank normally includes this review as part of its conditional approval.
Does this sound like we are good to go, or are there any red flags here? Again, thanks to all for being so generous with your advice.
If I was afraid of them over-stretching I would make the earnest money, or at least a portion of it, not contingent upon financing. If they do not get financing in the amounts needed then you keep the earnest money as consideration for taking the house off the market.
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