Mistakes Home Buyers Make When Getting Loan Approval
Real estate agents insist that every purchase offer is accompanied by a loan approval letter before they will submit the offer to the seller. It's not just common practice in Sacramento; almost every agent anywhere in the country requires a loan approval letter with offers.
Why Agents Insist on Loan Approval Letters
Unfortunately, loan approval letters are virtually useless because they carry very little weight. Generally, the lenders do not guarantee they will make the borrower a loan. So what good are they? Simply put, a loan approval letter proves the borrower has applied for a loan and, hopefully, is serious about buying a home, and that's about it.
Loan Approval Letters Influence the Seller
You can make your loan approval letter mean more than you have applied for a loan, and the letter can give the seller solid reasons to accept your offer. Or, your loan approval letter can give the seller reasons to reject your offer. Which kind of impression do you want to make?
3 Common Loan Approval Mistakes
- Submit a Loan Approval Letter From an Out of Area Lender. Listing agents feel comfortable if they know the lender who has prepared the loan approval letter. They get antsy if the lender isn't local because they don't know if the lender will perform.
- Let's face it, there are a lot of fly-by-night mortgage lenders in business, and some make outrageous promises to borrowers that they never intend to keep. They figure by the time the borrower is ready to close, the borrower will have no option but to meet their new terms and conditions, but many borrowers instead walk away from closing.
- It puts a home buyer at an extreme disadvantage to submit a non-local lender approval letter. If home buyers encounter difficulties with the loan, it's not like they can lean across a desk and grab their mortgage broker's throat. Instead, they must glare at their monitor and furiously pound the keyboard or continually push redial on their cellphone.
- A major problem is choosing a knowledgeable appraiser. Out-of-area lenders generally have no personal experience with an appraiser they pluck out of the phone book and may hire an incompetent appraiser who can mess up the appraisal and blow the deal.
- Submit a Pre-Qualification Letter Instead of a Preapproval Letter. Prequalification letters vary in verbiage, but most of them say the mortgage broker or loan officer has received a loan application from the borrower. Period. They may or may not have reviewed a credit report. The letters also state there is no guarantee that the lender will make the loan.
- A preapproval letter, on the other hand, speaks volumes. Preapproval letters say the borrower's file has been submitted to underwriting and approved. It means the borrower's credit has been reviewed and found to be acceptable, the borrower's employment has been verified and the borrower's assets have been substantiated.
- Submitting a preapproval letter means the borrower is fully qualified to purchase the home, subject only to an appraisal and title work.
- Submit a Loan Approval Letter for More Than Your Offer Price. Let's just wave a flag in the seller's face that says, "Look at me. I can pay more than my offer price." That's how sellers interpret a loan approval letter in excess of the purchase offer. They don't think it's nice that the borrower is qualified for a higher loan amount because they immediately want to put some of that money into their own pocket.
- The seller needs to know that a home buyer can afford the mortgage that the buyer is proposing to obtain in the purchase offer, and not a penny more.
At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.