Morgage pre-approval and/or pre-qualified letter

There's a real estate maxim that "buyers are liars" -- which has come about through hard experience, as every one of us has a story about a buyer who has misrepresented his or her financial position.

Sometimes that's not a "lie," but the buyer being actively overly optimistic -- we've seen on these boards the laments of more than one buyer who was shocked at very reasonable board turndowns.

So yes, a prequal or pre-approval letter helps, because I know at minimum that someone has done the credit pull. Similarly, if you come to me through a broker I know, I'll assume that he/she has done the credit pull, or otherwise checked up on you.

But if you come to me through a broker I don't know, or come direct on one of my listings, and say, "my income is x and assets are y," then I can't ever quite believe you until I see some documentation -- so it just slows you up a little, and puts you maybe a half-step behind if things get competitive.

I know it's a hassle, but it shouldn't take you more than an hour to find and fax (or find and scan) a tax return, a pay stub, and a couple of bank statements.

ali r.
DG Neary Realty

"But if you come to me through a broker I don't know, or come direct on one of my listings, and say, "my income is x and assets are y," then I can't ever quite believe you until I see some documentation -- so it just slows you up a little, and puts you maybe a half-step behind if things get competitive."

I'm sorry, but as a buyer I feel no need to "justify" myself to a seller's broker.

No one needs to see my personal information until it gets to the point of a board package, thank you.

"There's a real estate maxim that "buyers are liars""

Really, Ali? Is this the sort of nonsense you come up with in between adding zeros to square footage numbers and using wide-angle lenses to make closets into bedrooms?

By the way, for all your interest in a buyer verifying their financials, when do you turn over a building's financial records for inspection?

front_porch: "There's a real estate maxim that 'buyers are liars'"

...and brokers are ______???

"Sometimes that's not a 'lie,' but the buyer being actively overly optimistic"

...and brokers are being ______ with the square footage, the condition of the place, asking price, the market condition, etc...

I've heard a lot of RE agents say "Buyers are liars", but usually it's about what they think they want to buy, e.g.; they think they want a 2 bed coop on the UES, but they end up in a loft in Soho.

Brokers are human too. Supposedly.:)

As for the OP; I've been shown a pre-approval letter in conjunction with an offer, and all it did for me was tell me how much money they had to spend. If the buyer was bidding below that max, I just waited until they hit their max amount and THEN I considered their offer.

Works great for a seller.

Ali and needsadvice, thanks for your replies? Anyone else?

A little harsh, everyone. If you are thinking of buying a property that has a broker, then Ali's post is helpful here, isn't it? She let's you know candidly how a broker may think. When I go about getting a deal done, the more I know about how the other parties think, the better off I am. If I want to cop an attitude (e.g, NYCMatt), it is easy enough, but I don't think it gets deals done. If a letter of pre-approval gets my toe in the door, or gets the broker to "like me" more, or makes my offers get taken more seriously over someone without the letter, then all the better since it is simple enough to get a pre-approval letter. Maxim of my own in deal making: what you don't need, graciously give away. Here, I couldn't care less about revealing my finances--they're ultimately integral to the deal and they are quite good. Disclosing this early moves the ball forward. When shopping for a coop, I tried to establish from my first contact with the seller's broker that I was a highly qualified buyer who a board was very likely to approve. "Oh--but the seller will then not come down in price as much because they'll think you are loaded and can afford to pay more," one might say. Well, nonsense, There are plenty of ways to address that if you have a clue as to how to negotiate.

So silly that smart people attack the messenger in a cyber-space rage as if that will change the reality of what she is sharing. And Ali deserves a bit better, anyway given her countless thoughtful, substantive posts over a long period of time and her steadfast refusal to engage in personal attacks.

Newbuyer99 -

It makes a ton of difference if you have a pre-approval letter from a reputable bank.

Its not a matter of contract - (i.e., you will have your mortgage contingency) - more that it is clear that you are a "qualified" buyer... and so someone to be taken seriously. Too many people here in NYC are shopping beyond their means... and as a seller, you don't want to take a chance on people who can't follow through.

Coop buyers tend to be "pre-screened", as we all know you need at least 25%, often 50%, sometimes 100% in CASH. But condo/house buyers can try and leverage 10x+ (i.e., a 10% deposit - even today)... and can get a little carried away sometimes with what they Think they can get, vs. what their bank will Actually give them.

So yes, its worth something. Not a lot, but hey, if you've got one, I at least know you are looking seriously.

Newbuyer - I know this question was for sellers and selling broker but thought I'd give another perspective. You're right in that a pre-approval letter is easy to get but only from some banks/lenders. Personally, I don't issue a pre-approval if I don't think there is a 99% chance they'll actually get the mortgage. Afterall, I'm the one putting my signature on there. When certain sellers and brokers refer me, sometimes there is a misconception that they are trying to steer the buyer to me because there is something extra in it for them. The truth is that they just want make sure the buyer is a qualified buyer that won't have trouble getting a mortgage. And they know I won't pre-approve a buyer that isn't qualified. Many times the buyer will even have the seller or listing broker contact me directly to validate the pre-approval. Well, getting to your question, a pre-approval is intended for you as the buyer first and foremost. I think it does matter who the pre-approval letter comes from to most sellers. Bank vs mortgage broker. It doesn't mean one is better than the other but psychologically it seems more official when it comes from a bank the seller recognizes. This comes experiencing being both a mortgage broker and working directly for a bank. Sorry I hope I wasn't all over the place with my answer. sunny.hong@bankofamerica.com

"I tried to establish from my first contact with the seller's broker that I was a highly qualified buyer who a board was very likely to approve."

Interesting how you assume there's somehow a relationship between the broker and the board.

Most of the time, none of us board members has even heard of these agents. And there's supposed to have some sort of inside track on the board and getting approval?

LOLOL!

I like to attend open houses in my building just so I can hear the misinformation spouted by the agents.

NYCMatt: "Interesting how you assume there's somehow a relationship between the broker and the board."

If kylewest thinks you're more likely to go to hell, does it mean that kylewest has a relationship with the devil?

No.

Kylewest seems to think that agents somehow have a clue when it comes to the board.

They don't.

Really.

Any qualified agent familiar with a particular building especially due to previous sales experience in the building, would have some ideas as to what type of people (financial related and otherwise) are likely to be approved.

That's all they would be. "ideas" and "speculation."

As a seller, if I am presented with two bids that differ only slightly, I would go with the recommendation from the agent as to who she "speculates" as the most likely candidate to be approved by the board based on her previous experience.

As a seller, actually, you have more of a clue about your own board (your NEIGHBORS) than some random agent does.

NYCMatt, that's a good point, especially for someone like you who is a board member. However, in larger buildings many people don't know most of their neighbors or pay much attention to transactions going on in their building. They would start paying attention when they want to sell, but that does not mean they see the rejected pool like some agents and the board members. In smaller buildings, there might not have much transaction recently at all, in which case, one would have to depend on the agent's general experience more.

Btw, most people really don't know their neighbors that well, especially their finances.

Matt, sometimes your general misanthropy clouds your ability to correctly read and understand.

I do not think an agent's opinion of a buyer has anything to do with board approval. That's silly. I do think an agent's perception of the buyer can very much influence a seller's view of the buyer. And the first order of business is to get the seller to accept the buyer's offer. When I was a buyer, I was keenly aware that a seller would be more favorably disposed to my offers if the seller viewed me as financially qualified (and thus unlikely to run into financing problems later that caused the deal to fall apart), and as a person the board would approve from a financial and "social" perspective. Accordingly, from my first contact with a seller's agent, I attempted to present as serious, financially able, and a nice, middle-of-the-road type personality unlikely to offend anyone's sensibilities on the board.

To this end, a letter of commitment from a bank can only help a buyer. It suggests they are not just browsing, but are ready to buy and have at least taken the time to talk to a lender. That minimal effort can contribute to distinguishing them from another buyer. In addition, having a one page summary of one's finances also demonstrates seriousness to a seller as well as establishes a buyer's financial wherewithal and ability to close the deal. Being tight-lipped about outstanding financials only undermines a buyer. As a buyer, I was perfectly adept at negotiations which should be value focused--not about what the buyer can afford. Any buyer who lets the negotiations get sidetracked into what s/he can afford based on his/her financials is a damn lousy negotiator.

"Any buyer who lets the negotiations get sidetracked into what s/he can afford based on his/her financials is a damn lousy negotiator."

I suspect many buyers are indeed lousy negotiator and influenced by what they can afford as oppose to being "value focused." Many (even if not most) sellers/agents thinks the same and will at least try to take advantage of that fact depending on the market condition and urgency in selling. That is why, figuring out the exact loan amount to show on the pre-approval letter is an interesting topic on its own. i.e. if the apartment is asking for $1m, it might not be a good idea to show a pre-approval for $2m.

thanks again, very helpful. Like kylewest, I also try to establish how strong our financials are from the first contact with the broker, and I am completely open/honest - we have nothing to hide. There are some coop boards we won't pass, and the earlier everyone knows on both sides recognizes that, the better for everyone.

Although I like and respect Ali, I do have to admit that her post rubbed me the wrong way a bit. A broker has A LOT more incentive to lie than a buyer does, yet I don't ask brokers to document and prove every single one of their statements at an early stage of the negotiations.

I am more than happy to prove everything I need to, at the right time. The issue is that (at least at Citi, where I bank and whom I spoke to) getting a pre-approval letter is basically equivalent to actually applying fo a mortgage, which is most certainly neither quick nor easy. Lots of paperwork, time, conversations, etc.

If I were 100% sure I would ultimately get my mortgage from Citi, then I wouldn't feel like the process would be wasted. But I have no idea who will have the best deal at the time I actually need a mortgage.

In any case, I asked for opinions, and I got some - thank you.

Sunday, I understand your point about the negotiation, but am not worried about it in my particular case. If I do get a pre-approval letter, I would err on the side of having it show that I am over-qualified, and I'll deal with the negotiations.