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September 16, 2009
Pre-Approval Amount?
After speaking with my lender, they suggested that I only get pre-approved for the amount of the offer I wish to make. I did this, and then found out there was a competing offer. I'd like to now make an offer which is a bit higher than my pre-approval amount.
Will showing a pre-approval amount $18k lower than the offer I am submitting hurt me?
What do people usually do in this situation? We were advised not to get approved for above the asking price as it would hurt us in negotiations.
We are also interested in offering on another property if this one falls through. The other property would be quite a bit more expensive than the current pre-approval amount. The difference between the offer and the pre-approval letter would be $45k.
Do people just get a new pre-approval letter for each property they want to bid on? My lender says no, and that 'everyone knows' a pre-approval amount doesn't necessarily reflect the max of what you can afford - and you can just explain to the sellers agent that you have the savings to cover the difference between your pre-approved amount and the asking price.
Your help please! I don't want to lose this apartment!
Comments
If a pre-approval id not for a specific property, just an indication of an amount, how could it possibly 'hurt negotiations?"...you might be looking at a range of properties. I thought you got a pre-approval for the maximum you can afford.
Am I wrong?
Posted by: cmu at September 16, 2009 9:50 AM
CMU, you're correct. pre-approval for max you can afford.
OP, you were given bad advice. if comparable offer price, seller would choose buyer with the higher pre-approval cause seller would think that buyer has higher probability of getting financing and proceed to close.
Posted by: more4less at September 16, 2009 10:08 AM
18k seems more than just "a bit higher"
Posted by: SenatorStreet at September 16, 2009 10:23 AM
You should not get a pre-approval for all different amounts. A pre-approval letter indicates to a seller that you are more than financially able to purchase the property. The amount approved does not mean you are willing to spend that amount, it is only to reassure the seller that you are a good buyer. The market value of the property may be $500K for example and you may be pre-approved for a mortgage based on your finances at $600K, that does not make the property worth more. A pre-approval letter is based on your personal finances and not based upon the appraisel of a specific property. One has nothing to do with the other. However, it will hurt you if indeed there is a higher offer and now you want to offer more than your original pre-approval letter said you can afford. That is why you should just have a legitimate pre-approval letter. You want to put your best foot forward when making an offer and you do not want to look like the purchase would be a stretch for you financially.
Posted by: broker at September 16, 2009 10:25 AM
However, you need to be a bit careful that the pre-approval letter does not show your cards during a negotiation. If you are negotiating against your own price ceiling - and your pre-approval is for 100K more - that information may work to strengthen the sellers position in driving up the sales price.
Posted by: stnbrkn at September 16, 2009 10:32 AM
A mortgage broker told me there is a difference between a pre-approval and a pre-qualification. One is first-level and sort of general, and one is specific to a particular property (?).
Is this correct? I was preapproved for a certain amount, but then he told me I should go on and get pre-qualified, too. Is that necessary?
Posted by: zuleika at September 16, 2009 10:57 AM
just get pre-approval for your absolute maximum mortgage. we got an approval for an extra $130K then we used.
Posted by: wine lover at September 16, 2009 11:06 AM
I agree with stnbrkn.
We got a new letter with each offer we submitted. This advice was given to me by the mortgage lender we were working with at Wells Fargo. The reasoning was we didn't want the seller to know how high we actually could go. I just made sure that the letter covered a little over our bid.
Posted by: TownhouseLady at September 16, 2009 11:29 AM
...and by a little over our bid I mean how high we were actually willing to go.
Posted by: TownhouseLady at September 16, 2009 11:30 AM
Question for you TownhouseLady, my lender is saying that with each different letter he prepares, he needs me to come in and sign a new preapproval application each time - as he can not give me multiple preapproval letters for multiple amounts. Did your lender run a new pre-approval for each and every letter change?
It seems like the best idea to get a new letter for each offer, but then again - from what he says - I don't want them to run a request for my tax records from the IRS every single time.
What do you think?
Posted by: bklyn11238 at September 16, 2009 11:39 AM
bklyn11238,
it's a buyer's mkt. seller knows just because you can afford to pay more doesn't mean you'll pay more than what you offered. The higher pre-approval amt simply means you have solid credit and/or income - ie a buyer who has higher probability of securing financing and proceeding to close. relisting, in the scenario of failed financing, can be costly to seller so they have strong incentive to pick buyer with strong credit profile
Posted by: more4less at September 16, 2009 12:19 PM
Be strong.
Go to the seller with a pre-approval letter that gives the message: "I'm wealthy and I can afford to buy your home. But I'm not willing to give you all my money. I'm willing to pay X-amount."
Posted by: Pigeon at September 16, 2009 1:08 PM
bklyn11238
I'd call my rep at the lender. He'd insert the new number and email to me within the hour.
I was trying to buy in a bracket far lower than what I was pre-approved for. He said as long as I didn't want to exceed that number he was fine with it.
Posted by: TownhouseLady at September 16, 2009 1:23 PM
I also understand what M4L is saying too. When I bought the market was a bit different. It was starting to dip but hadn't dropped yet. People were still trying to haggle for every penny.
Posted by: TownhouseLady at September 16, 2009 1:24 PM
My mortgage guy just put the property address and no amount in my letter(s); I got a new letter for each property I put an offer on. Luckily we only bought the second place we put an offer on (well, I'm closing this afternoon -- fingers crossed), so I didn't have to get too many letters, but my mortgage officer didn't seem to mind drawing up a new letter.
Both property prices I offered on were much lower than the amount I was approved for. I felt that the first property I put an offer in on was WAY overpriced. Although I was pre-approved for more than the asking price, I didn't need the sellers to know that. They ended up coming down by $40k, but still not down enough to where I thought the house was a good deal. I am willing to bet that if they had known how much I was pre-approved for, they wouldn't have come down as much. In the end, it doesn't really matter, since we couldn't come to an agreement about the price anyways.
Personally, I don't really want the sellers to know how much I can afford. The less information I can give them, the better. Since I think sellers are still overpricing properties because they can't understand that the market crashed and their house isn't worth what it was last year, they will also use whatever information they can get the highest price out of you.
Posted by: brooklynstyle at September 16, 2009 2:30 PM
I've heard that mortgage companies often (routinely?) pre-approve for amounts greater than buyers can comfortably afford. (Isn't that what got this country in its economic mess?) Are sellers unaware of this? Or, perhaps some sellers simply might be unwilling to lower a price if they think the buyer can afford to pay more.
I guess it's a psychological game. Do you want to be the financially modest person who needs a lower price? Or, would you rather be the wealthy person who will seem more likely to proceed to closing (but who insists on a lower price)? Which is the better position?
Posted by: Pigeon at September 16, 2009 3:25 PM
A pre - approval letter is just that. It's not a bank statement or a stock portfolio. A seller can think what they want, it's up to you to decide how much you're willing to pay for a property based on what you think it's worth.
Posted by: Crownlfc at September 17, 2009 12:42 AM
this isnt your question exactly but remember that many offers are delusions of the real estate adjusters.
Posted by: slick at September 17, 2009 2:16 AM
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