Larry Gray

Posts Tagged ‘pre-approval letter’

Remember the old Boy Scout motto “Be Prepared.” As in most aspects of life this is especially true when you decide to get into the short sale and/or bank owned real estate market. There are a lot of great deals out there but, you must be prepared to move quickly when you find the property you want.

In most real estate transaction the seller requires the perspective buyer to have a pre-approval letter from their financial institution and/or proof of funds to submit with their offer of contract. This is especially true with short sales and bank owned transactions. They do this to protect the seller by giving them an indication of the buyer’s credit/financial worthiness prior to them taking the property off the market by putting it under contract.

A smart buyer who has done their homework prior to beginning their search is a buyer who is ready to jump on a good deal when one comes up. Not only does it allow the buyer to move quickly it also lets them know what the can and can not do upfront, thus avoiding issues later in the process. This is a win-win necessity.

In our local market there is an abundance of low priced bank owned houses becoming available everyday. This has brought out the cash investors who are looking for great deals and have the cash available to move quickly to lock up these opportunities. As an individual buyer trying to break into this market either as an investor or to purchase your personal home you have to be ready to compete with the cash investor.

During the last several weeks I have seen several buyers lose great deals on a possible new home because they were not prepared to make a quick offer on the property. By the time they got there paperwork ready the listing agent said he already had, in one case, five offers on the property and 3 were cash offers. This could have been avoided and may have resulted in a contract if the buyer had done their homework and been prepared.

It is relatively simple to seek pre-approval from a financial institution. If you have a preferred financial institution or bank that you like dealing with go to them and request it. If you don’t have one then ask your real estate agent and they will be able to refer you a reputable financial institution. In either case you will have to answer questions about you income and financial status and the institution will run a credit check on you to help determine if you meet their credit standards. Typical they can have you an answer within 24 to 72 hours.

There are two important caveats to this. The first is this is only a pre- approval and not a final guaranty of credit. A more in-depth approval process will be completed once you have a contract and the mortgage lender has all the information on the property and any additional information on you they may require.

The second is that there is a difference in a “Pre-Approval letter” and a “Pre-Qualification” letter. Generally a pre-qualification letter is not worth the paper it is written on and often used as a sales gimmick. Be sure to specify to your financial institution that you want a “Pre-Approval Letter.”

This is a tough market for both sellers and buyers with stiff competition on all sides. But, you can help level the playing field by doing your homework upfront and being prepared.

Just remember; “If you snooze, you lose.”

Recently I have run into several first time buyers with a unique credit problem.

In our initial discussions, prior to looking at homes, one of the questions I ask is “How’s your credit.” Often I get the following answer “My credit is excellent; I don’t have a mark on it.”

I always suggest they get a mortgage pre-approval letter, as it gives them more leverage to bargain with and lets them know what they can afford. I will refer them to several loan brokers I trust or suggest they check with their preferred financial organization.  Three out of the last four I referred came back with the same response from the mortgage company, “Yes, you do not have bad credit. In fact you have NO credit.”

A lot of people do not understand that having no credit history can be as bad as having “bad” credit when it comes to financing a house. Establishing a good credit history is a very important part of modern day life. This is especially true today when your credit history is used to determine so many things in life such as mortgages, insurance, job offers, etc. Avoiding credit in your life can have many negative repercussions in all areas of your life. 

Responsible credit takes work and does not just happen.  Building a good credit history does not occur over night and takes planning to accomplish.  You have to understand and know your financial position and make good decisions based on that position.

 Begin building your future today.