Over the past couple of years I have written my fair share of pre-approval letters for borrowers here in Logan, Utah who are making an offer on a home, and it seems like the majority of the time they ask me to put that they are qualified for only the amount that they are offering.
I was thinking about this the other day. It's obvious that the mindset of the borrower is that they don't want the sellers to think that they are approved for a higher amount because they are scared that the sellers will think, "well, if they are qualified for a higher amount, let's counter-offer for that amount".
A real estate agent here in Logan, Utah might have a better feel for how this should work but I'm starting to think that this mindset might be counterproductive, especially in our current mortgage climate where it is more difficult to qualify for a mortgage than it has been in years past.
Put yourself in the shoes of a seller for a minute. Let's say you have your home listed for $200,000 and you get two offers for 190k each from different buyers. One of the 190k offers is accompanied by a pre-approval letter that states the buyer is pre-approved for an amount up to 250k. The other offer is accompanied by a pre-approval letter which states that buyer is approved for only 190k. Which offer would give you more confidence that it would close?
Wouldn't you as a seller be more willing to negotiate with someone that won't have any problems getting qualified for the loan than a borrower that can just barely qualify? I think that in this market where more loans are falling through than normal, that the answer is a resounding "YES".
I'm curious to hear what your thoughts are on this? Do you think the pre-approval letter should state the borrowers are pre-approved for their offer price, the list price, or the maximum amount that they are approved for?
If you are looking to purchase a home in Logan, Utah or Cache Valley, call me at 435-755-2177.
About the Author
John Neil is a loan officer that is passionate about his profession. His goal with every transaction is to make a customer for life. The result is that 95% of his business comes from referrals of satisfied clients. If you need a cache valley mortgage, you can contact John at 435-770-2709. You can also follow him on twitter @LoganUTMortgage or facebook @facebook/MortgageNerd
I am not sure I would want the 250 on a 190 offer... but 210??
I think this is a bit of a holdover from when things were hot and prices going up fast. Don't know for sure...I have done it both ways depending on the circumstances
I have buyers right now with an offer in and I wanted to submit a pre-approval with it and am wondering the same thing. The seller does seem to be concerned that it is an FHA loan for some reason, but my seller is qualified for over 30,000 more than they're offering. However, the house isn't worth much more than the offer. So, would it be best to get a pre-approval around asking price? Maybe so since the excess wouldn't really matter to the sellers. Just thinking while writing here. Thanks for the post. I wish there were more comments to get a real discussion going.
I just think it is important to make the pre-approval letter as strong as possible. Maybe that doesn't mean that you put a higher amount than the offer? But the sellers need to know that the loan is going to go through.
I always say the buyer is approved for the amount of the sale and if they want it to be stronger then have them put double the escrow.