The Importance of the Right Lender Approval
Everyone has heard recently how competitive the real estate market is right now and that houses are selling with multiple offers over asking in many cases. Sellers should be aware of the difference in the offers and the buyer’s ability to purchase.
One of the most important aspects of my job as a real estate agent is advising my clients on what is in their best interest. They hire me because I have the experience and expertise to guide them through the process and educate them on what they don’t know. When I am selling a home, I look through all the offers and decipher all the differences between each one submitted. Helping my sellers decide which offer to accept is NOT just about the purchase price. There are a lot of factors to consider including the home inspection expectations, appraisal contingency, deposit amounts, dates for performance on each step and one of the most important parts, the buyer’s ability to buy.
Most people are not aware of the difference in the various types of letters provided by a lender and what they mean. I wanted to go through them for you so you have a basic understanding which should help if you are planning on buying or selling this year.
If you are a buyer, this market can be extremely frustrating. No buyer wants to continue to spend countless hours looking for a new house putting in offer after offer… only to find out they were out bid again! How do you compete? The lender letter could be an important factor you might be overlooking.
For sellers this is equally important. When I am listing a property, I always make the buyer’s agent send a copy of their lender letter along with the offer. This shows me that the buyer has talked to a lender about their finances on some level and the lender has issued a letter stating they have reviewed the buyer’s information and feel they are qualified to purchase this home.
There are many different types of letters. The most common are prequalification letters, preapproval letters and precommitment letters. Every lender is a little different but the prequalification letter tends to be the easiest one to get. You can usually just call the lender and tell them your income, any current loans you already have, your current assets, and your employment. Usually with this basic information a prequalification letter can be issued. Next option is the preapproval letter. The preapproval letter usually requires you to share more personal and financial information as well as run a credit report. As a result, a preapproval letter usually is a more accurate representation of what the buyer can afford. Lastly, the precommitment letter is even more secure. This means that the buyer has already submitted all financial documents not just reviewed verbally, the lender has sent all the information through the underwriting process for approval and has offers a “precommitment” to lend the buyer the amount requested conditional on the property passing all the requirements. So, in this case, the buyers are fully approved and they are just waiting to assess the property information and to commit the money for the loan. As a Realtor, this type of letter shows me the buyers have been through a more rigorous process verifying they can afford my clients house.
This could be the difference in the buyer getting an offer accepted if they submit a precommitment letter with the offer showing they are already through the underwriting process and have been fully vetted by the lender. This also in most cases, allows a lender to close quicker. Some loans can close in as little as 20 days instead of the 45-60 days needed on a prequalified or preapproved buyer. The timing of closing is another important factor for sellers to consider in accepting an offer, so having this flexibility for a quick close can also make a big difference.
If you are a seller, ask your Realtor to look into what type of lending preapproval the buyers have gone through. If one of the buyers is already pre-committed for the loan, this might make the difference in which offer you choose. Every seller wants to make sure the buyers are committed to purchasing the property and choosing an offer that is the most likely to close is a priority when making the decision.
If you are a buyer and your offers have been getting rejected you should speak with a lender. Feel free to call me for some local lenders offering precommitment letters. This can make you stand out from the pile of offers in a multiple offer situation if the seller understands how your commitment is better than a competing offer.
With rates changing and spring market upon us, I would recommend you reach out to an expert to discuss options. Even if you talked to them last year, the market changes fast and keeping up with the most current information is key this spring. Feel free to call or text me at 978-407-2568 or email firstname.lastname@example.org with any questions.