Buying A Home
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Mortgage Pre-approval Letters

So, this week, after a large amount of paperwork, we were pre-approved for a mortgage.

We were pre-approved for $900K, which is an insane amount and not anything we would consider.  We are looking at homes in the $500K price range.

A relative told me to have the mortgage company make the pre-approval letter for only $500K.  She said if we went in with a letter for the full amount, we would lose negotiating power?

If this normally done?  I can see it the other way, if we get a letter for only the exact amount of the house purchase, it might look like we are buying at the top of our range (given how the mortgage industry still seems to grossly overestimate people's buying power) and really stretching things.

What do you think?

Beautiful baby girl born at 34 weeks due to vasa previa.   Finally home after 15 day NICU stay!

Re: Mortgage Pre-approval Letters

  • When we went in for pre-approval the bank never gave us a number, they asked us what range we were looking at and the told us that they could approve a mortgage for that based on our paperwork.  I'm sure we would have gotten approved for much but this is what we determined we could afford, similar to your situation.  A lot of banks, at least in my area have fortunately taken the approach of the bank we went with by asking us for the number.  I think it's the more responsible thing as their formula always is typically higher than what people can actually afford and I think it's a good way to test the client to see how responsible they are.  If they come in with a number that then the paperwork doesn't support, the bank gets an idea that maybe these people don't understand their finances and might be a risk in the future.

    Your relative is correct.  You don't want an approval letter for that much more than the range you are looking for because it will hurt negotiating power.  If I was a seller and they buyer wanted me to drop the house price but I saw that they could "afford" almost double the house price, why would I?  I could see you idea but honestly the only people who need to worry or care if you are at the top of your budget is you and your bank.  The only time I could see the bigger letter being better and perhaps others can shed light on it, is if you are in a very competitive market with multiple bids.  I could see where that higher number would show you'd have no trouble with financing but my market is definitely a buyers market and weren't dealing with multiple offer situations.   You could always ask your realtor what's best, they'll know your market and know what's best

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  • Our mortgage loan officer told us the same thing. He told us that having a pre-approval letter really helps your negotiating power, especially if there are multiple offers on a house, but that if we brought a pre-approval to a seller that was much higher than the offer price, they may be less likely to negotiate the price. So we had the letter printed with what we think would be the max we would spend. He said we can always come back and re-submit the application for higher and get a new letter if we find something in a higher range and want to make an offer on it.
  • I think you should consult your agent.  I've found this to be regionally related.  For example,  Where I live now didn't even need a letter because our range was where yours is.  No one ever asked.  
  • I was told to submit pre approval with offer for the exact amount of offer, if the seller sees you are qualified for more, their realtor can try to counter or say there's multiple offers even if there's not - to see if you increase offer. 


  • image jsarah:
    I think you should consult your agent.  I've found this to be regionally related.  For example,  Where I live now didn't even need a letter because our range was where yours is.  No one ever asked.  

    This.  We never needed a letter.  


    imageimageimage
    Lilypie First Birthday tickers
  • We never showed out pre-approval letter to anyone other than our agent, so nobody on the selling side ever knew what we could afford.  Like someone else said, it might be a regional thing, but I don't know why the sellers would need to see your letter.  
  • When we submitted offers, we would submit an approval letter for the max amount we were willing to offer on that property. So say we initially offered $445 on a property, but we knew we were willing to pay $465 for that property, we would have our mortgage guy draft up an approval letter for $465. That way the buyer knew we were not maxing ourselves out with our initial offer, but that we also had an upper limit for negotiations. So our mortgage guys drafted numerous letters for us throughout the process, and each letter amount was tailored to that particular offer.

    Edit: I don't think the pre-approval amount makes your offer more competitive. What makes for a more competitive offer, at least in our area, is the amount of earnest money offered, whether the loan is conventional or has to deal with the hassles of a federally-backed loan, the information from the financial disclosure form (3 of our offers required this), and a well written letter to the sellers.

  • image vpine:

    I was told to submit pre approval with offer for the exact amount of offer, if the seller sees you are qualified for more, their realtor can try to counter or say there's multiple offers even if there's not - to see if you increase offer. 

    This. Our bank was happy to oblige.
  • Thanks, ladies. I'm consulting with the mortgage broker now to find out if they'll do a letter just for our offer price.
    Beautiful baby girl born at 34 weeks due to vasa previa.   Finally home after 15 day NICU stay!
  • image chicagobride_07:
    Thanks, ladies. I'm consulting with the mortgage broker now to find out if they'll do a letter just for our offer price.

    This is what ours did! We negotiated back and forth several times and I believe he sent a new letter each time. 

    image Lilypie First Birthday tickers
  • Our loan officer was actually the one who asked how much the home was that we were looking at buying and would then draft a letter for a little above the amount of the asking. I actually asked my loan guy how much we were preapproved for and he never told me, he just said tell me how much the home is and how much you are going to offer and I will draft you a letter when you need it.

    There is a lot of game playing on both sides sometimes. On my first attempt of buying a home the seller's agent told us there were multiple offers and we needed to come up on our offer and when we refused to budge they came down to us (BTW-this is completely unethical on part of the agent). On another home we gave them an old preapproval letter (which was less than what we were offering) and told them we could have a new one drafted by the start of the next business week if it was needed.

     So I would really suggest just having your loan officer drawing up a new letter as needed/if needed. I wouldn't want to show all my cards at the start of the game. Plus you might feel less inclined to max out your budget, even though it is a just a piece of paper with an imaginary number on it! Angel

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