Do not sabotage your offer to buy by submitting a correction for wrong credit approval. Real estate agents insist that every purchase offer is accompanied by a letter of credit approval before the offers are submitted to the seller. It’s not just common practice in Sacramento; almost every agent anywhere in the country requests a letter of approval for a loan with offers.
Why agents insist on letters of credit
Unfortunately, letters of credit are virtually useless because they carry very little weight.
Generally, lenders do not guarantee that they will lend to a lender. So what good are they? Simply put, the loan approval letter proves that the borrower has applied for a loan and, hopefully, is serious about buying a home, and that is about it.
Loan approval letters affect the Seller
You can do a loan approval letter more than you applied for a loan, and the letter can give the seller good reasons to accept your offer. Or, a loan approval letter may give a reason for the seller to reject your offer. What impression do you want to make?
3 Common lending errors
If you want to supply the seller with a lot of ammunition to reject your offer or encourage a higher price quote, then make any or all of the following credit approval errors.
- Submit letters of approval from a loan facility.
Listing agents feel comfortable knowing the lender who has prepared the loan approval letter. They make money if the lender is not local because they do not know if they will lend.
Let’s face it, there are a lot of mortgage lenders in the business, and some make dire promises to borrowers who never intend to keep. They get to the point where the lender is ready to close, the borrower will have no option but to meet their new conditions, but many borrowers instead of closing from closing.
This puts the buyer of the home in an extremely disadvantaged position to submit a letter of approval for nonlocal loans. If home buyers are experiencing difficulty with a loan, they cannot rely on a desk and grab their mortgage broker. Instead, they have to look at their monitor and violently affect the keyboard or constantly press redial on their mobile phone.
The big problem is choosing a well-known appraiser. Out-of-area borrowers generally have no personal experience with the appraiser they removed from the phone book and may hire an incompetent appraiser who can confuse the appraisal and double the contract.
- Submit a pre-qualification letter instead of a pre-approved letter.
Prequalification letters vary in scale, but most claim a mortgage broker or loan officer has received a loan request from a loan. Period. They may or may not review the credit report. The letters also state that there is no guarantee that the lender will make the loan.
The letter of recommendation, on the other hand, speaks volumes. Pre-inspection letters say that the borrower’s file was submitted for review and approved. This means that the credit of the loan has been reviewed and found to be acceptable, that the claim of the borrower has been confirmed and that the assets of the claim of the claimant have been substantiated.
Filing a letter of recommendation means that the lender is fully qualified to buy the home, subject only to the appraisal and title work.
- Submit a credit approval request for more than your offer.
Let’s hit the flag on the seller’s face that says, “Look at me, I can pay more than my bid offer.” Thus, sellers interpret a letter of approval for a loan that exceeds the purchase offer. They don’t think it’s nice that the borrower qualifies for a higher loan amount because they want to put that money in their pocket right away.
The seller must know that the buyer of the home can afford the mortgage the buyer proposes to purchase in the purchase offer, and no more money.