Buying A Home Dealing With Lender Letters

Buying A Home Dealing With Lender Letters

Buying a​ Home – Dealing With Lender Letters
Most people who set out to​ buy a​ home, be it​ house, townhouse, condo, apartment, or​ mansion on a​ hill, know they need to​ have a​ lender letter in​ hand saying they are qualified for a​ loan .​
What most civilians (people not in​ the real estate business) don’t realize is​ how much the value of​ a​ lender letter varies.
Let’s look at​ some of​ the general ways a​ lender letter varies, which sort you want, and how to​ present it​ to​ a​ seller to​ put you in​ the best possible position to​ buy that seller’s property .​
If you’re working with a​ broker, he or​ she will coach you in​ these matters .​
If you’re shopping on your own, and especially if​ you’re looking at​ FSBOs (for sale by owner properties), you need to​ know this stuff.
Lender letters come in​ two general types, pre-qualification letters and pre-approval letters .​
The bold print on the page may call it​ one thing, and when the letter is​ read, it​ actually proves to​ be the other, so pay attention .​
a​ pre-qualification letter is​ weaker than a​ pre-approval letter.
Pre-Qualification Letter
The weakest pre-qualification letter basically says that if​ everything the borrower has told me is​ correct, he/she is​ eligible to​ borrow $XXXXXX .​
All you really have here is​ the buyer’s word paraphrased by a​ lender .​
Unfortunately, there is​ an​ old adage in​ real estate that buyers are liars .​
This is​ well known, so presenting this type of​ a​ letter tells a​ seller you are not in​ a​ very strong position with the lender.
A stronger version says I​ have looked at​ an​ ‘in file’ credit report, and based on that and what the borrower has told me, he/she is​ eligible to​ borrow $XXXXXX .​
This is​ still not great, but it​ is​ a​ step in​ the right direction.
Pre-Approval Letter
The pre-approval letter says I​ have checked this person’s credit reports, seen all necessary substantiating materials relative to​ income…assets…etc., and my firm is​ committed to​ making a​ loan subject only to​ receiving a​ copy of​ a​ contract to​ purchase and the property’s appraisal for the contract price or​ higher .​
The letter may not say it, but it​ is​ also subject to​ the underwriting process that includes looking at​ updated credit information .​
Regardless, this letter carries a​ lot of​ power and sellers will be very happy to​ see you.
A Word to​ the Wise
The above discussion of​ lender letters brings up something you should be keenly aware of​ as​ a​ buyer .​
Your credit must not change in​ any substantial way between the time you first apply for a​ loan and the time you go to​ settlement on your new home.
If you’re buying waterfront property, do not go out and buy a​ boat until after you’ve closed on the property .​
I​ once saw someone make this mistake and almost lose the property purchase because of​ it .​
He had to​ quickly find a​ new lender and accept a​ higher interest rate to​ keep the deal from going south.
If you’re moving from a​ small condo to​ a​ larger place, there’s the temptation to​ run right out and buy more furniture for your new quarters .​
Fine .​
Just wait until after you’re the proud new owner.
If you are serious about buying a​ home, a​ lender letter is​ a​ key part of​ your negotiating ammunition .​
To save yourself a​ lot of​ aggravation during escrow, get a​ pre-approval letter before you go house hunting.

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