This ARTICLE On Reasons Real Estate Agents Wants You Pre-Approved Was PUBLISHED On March 17th, 2020
The Pre-Approval Stage Of The Mortgage Process Is The Most Important Part Of Your Home Buying Process: This Blog Shows The Reasons Real Estate Agents Wants You Pre-Approved
There are reasons real estate agents want you pre-approved before showing homes.
- One of the first things a real estate will ask you when you call them to see a home that is listed is whether or not you have a pre-approval letter
- Real estate agents will not show any home buyers a home unless the buyer has a solid pre-approval letter
- Reasons Real Estate Agents Wants You Pre-Approved is because they do not want to waste sellers time
- Do not take it personally if a realtor will not show a home without a pre-approval letter
Many times, home sellers request their listing agents not to show a home to home buyers without a pre-approval letter.
In this article, we will discuss and cover Reasons Real Estate Agents Wants You Pre-Approved.
Importance Of Pre-Approval Letter To Shop For Homes
Most listing agents will not allow realtors who represent home buyers to show the home if the buyers do not have a pre-approval letter:
- Almost every listing real estate agent will not accept a real estate purchase offer from a home buyer who does not have a pre-approval letter
- Reasons real estate agents want you pre-approved before showing homes is so nobody’s time is wasted
- Other reasons real estate agents want you pre-approved before showing homes is so that they know that buyers are able to afford the home they intend in purchasing and are not buying too much house
Buyers Versus Sellers Real Estate Agents
There are two types of real estate agents on a real estate transaction:
- A Home Buyer’s Real Estate Agent and A Home Sellers Real Estate Agent, also commonly called a Listing or Seller’s Agent
- The sellers home listing agent or sellers real estate agent is the licensed real estate agent who represents the home seller
- The home buyer’s realtor is the realtor who represents the home buyer
- There are cases where the sellers real estate agent will be the home buyer’s real estate agent
- If you were to drive by a neighborhood and saw a for sale sign that is from a real estate company, the contact information that is listed on the for sale real estate sign would be the contact number of the listing real estate agent
- If you did not have a real estate agent and would contact the realtor on the for sale sign, you would be calling the listing agent
If you were to put an offer on the home, the listing realtor would be both the buyer’s and seller’s agent.
Buyers Shopping For A Home
Whether you are dealing with a home buyer’s agent or listing realtor, a pre-approval letter will most be required.
- Even if the home buyer’s agent wanted to show you a home, the chances are that the sellers’ agent would ask for a pre-approval letter
- Pre-approval letters mean that a home buyer has been qualified for a mortgage loan by a loan officer
- Every loan officer have their own system on pre-qualifying and pre-approving a borrower
- But all loan officers will take a mortgage loan application by the borrower, run credit, review the credit scores, and make sure that the borrower meets the maximum debt to income ratios allowed
- The loan officer will take the purchase price, the property tax information, and homeowners insurance figures
- The loan officer will also need to know other monthly minimum debt payments
- They will thoroughly review the borrower’s income and compare it to the borrower’s credit profile and have a figure on how much home the home buyer can afford
- Shopping for a home without a pre-approval letter is like going Christmas shopping without your wallet
- The loan originator will let borrowers know how much home they can afford
- They will base it on income and credit
When you present the maximum amount of mortgage loan pre-approval to the real estate agent, the agent will narrow the home search to homes that meet the price range.
The Importance Of A Pre-Approval Letter
What is a mortgage loan pre-approval?
- The pre-approval stage of the mortgage process is the most important part of the entire mortgage application and approval process
- The number one reason why mortgage loans get a loan denial is that the loan officer did not properly pre-qualify borrowers and has issued a pre-approval letter without thoroughly analyzing and processing the borrower
- A mortgage loan pre-approval letter is a one piece of the letter stating that the borrower has been to a lender and the loan officer has taken an application from the borrower
- Loan officer qualified the borrower for a home loan based on the borrower’s credit, income, employment history, assets, liabilities, and other necessary information
Based on the information the loan officer has of the borrower, the loan officer has made a determination that the borrower qualifies for a particular home loan program:
- for a certain amount at a certain interest rate for a term of normally 30 years
- A pre-approval letter from a loan officer is a written qualification letter that states that the mortgage lender that the loan officer is associated with is able to lend a certain amount for a home purchase
Top Reasons Real Estate Agents Wants You Pre-Approved Before Showing You Homes
One of the top reasons real estate agents want you pre-approved before showing homes is because a pre-approval letter commands more strength than a pre-qualification letter.
- A pre-qualification letter is one page written statement from a loan originator
- It states the borrower qualifies for a certain loan amount for a certain loan program
- The decision is based on the loan officer’s basic review of the borrower’s credit, income, liabilities, and assets
- These days, pre-qualification letters are not often issued
- This is because most real estate agents and sellers do not even honor them and consider them worthless
A pre-approval letter, on the other hand, carries weight.
Reasons Real Estate Agents Wants You Pre-Approved And How Are Pre-Approvals Issued By Loan Officers
Most pre-approval letters are not issued unless the mortgage loan originator has done the following:
- taken a formal mortgage loan application
- run a tri-merger credit report
- has not just reviewed the borrower’s credit report but has also checked and reviewed the overall credit report
- reviewed borrower’s payment history
- especially the payment history of the past 12 months
Important Docs Reviewed By Loan Officers
Most loan officers will review the borrower’s following information:
- two-year tax returns
- two years W-2s
- 30 days paycheck stubs
Every loan officer has their own way of pre-approving their borrowers.
- Some may run the file through Fannie Mae/Freddie Mac Automated Underwriting System, also referred to as AUS
- While other loan officers will skip this step
- They may just issue the borrower a pre-approval letter
- Experience and diligent loan officers will not hastily issue a pre-approval letter
They will take their time reviewing the following:
- loan application
- credit report
- make sure there are no potential errors on the borrower’s credit report
- thoroughly interview the borrowers’ income and debts
Pre-Approval Letter Will Determine On How Much Home Buyers Can Afford
The second top reasons real estates want you pre-approved before showing homes is to determine the selection of home he or she can show buyers:
- Realtors do not want to go in a wild goose chase on showing homes shoppers cannot afford
The loan officer can determine the maximum home buyers can afford during the pre-qualification and pre-approval stage of the mortgage process.
- The loan officer will get the maximum amount of mortgage payment applicants to qualify for
- It includes the principal, interest, property taxes
- It will not include utilities, maintenance, and potential repairs needed on the new home purchase
- By knowing what maximum monthly housing payment is allowed will narrow the home search
- The shopper can look at homes they can afford and not go on a wild goose chase on looking at homes that is beyond their budget
Would not want to see a home and fall in love with the property to later find out that it is outside their budget and be disappointed.
Reasons Real Estate Agents Wants You Pre-Approved With Pre-Approval Letter
Most sellers and sellers real estate agents will not want to show a potential home buyer a home without a pre-approval letter.
- Many listing agents will not accept an offer from a home buyer without a pre-approval letter
- There are listing agents who will want to speak to the home buyer’s loan officer before presenting the real estate purchase offer to the home seller
- The verbiage of the pre-approval often adds weight
- For example, if the loan officer were to state that the borrower has not just had their credit and income reviewed by also has an approve/eligible per Automated Underwriting System
- This carries more weight than a pre-approval letter that does not have such verbiage on the pre-approval letter
- The buyer’s agent should always offer the listing agent that they are welcomed to contact the buyer’s loan officer
This is especially important when there are situations where there are multiple offers on a property.
Reasons Real Estate Agents Wants You Pre-Approved With A Solid Pre-Approval Letter
As mentioned earlier, not all pre-approval letters are created equally.
- Buyers need to make sure that their loan officer did not just issue a pre-approval letter within a matter of minutes without them thoroughly reviewing the docs
- If a borrower gets a pre-approval letter from a loan officer in a matter of minutes, the borrower should question the loan officer on how they were pre-approved?
- Was credit run?
- Was income reviewed?
- Were assets confirmed?
- Does the borrower meet all minimum federal lending guidelines as well as the lender’s own overlay requirements?
- Was the file submitted to an Automated Underwriting System, AUS, and did it yield an approved/eligible per automated findings?
- Remember that the number one reason for last-minute loan denials or major stress during the mortgage process is due to the loan officer not qualifying the borrower correctly
Loan officers issuing the pre-approval letter when it should not have been issued is the number one reason for stress during mortgage process.
How Do Mortgage Underwriters Analyze Borrowers
Some of the items that need careful analysis includes the following:
- if the borrower has any credit disputes on their credit report
- irregular income and/or part-time or bonus or overtime income may need Verification Of Employment
- VOE is issued from HR to make sure a solid income number is used and not guessed
- especially with borrowers that have a higher debt to income ratios
Many loan officers will get second opinions by a fellow loan officer or colleagues before issuing pre-approvals on questionable income wage earners or self-employed borrowers.
Sellers Side Will Not Accept Offer Without Pre-Approval Letter
A pre-approval letter is not a mortgage loan approval:
- It is not a guarantee that you are guaranteed funding
- There are times when home sellers or listing agents will show a property without a pre-approval letter
- However, almost all sellers and sellers agents will not accept a real estate purchase offer from a home buyer without a solid pre-approval letter
- For example, you do not need a pre-approval letter when visiting an open house on a weekend and anyone is invited
- However, if shoppers were to visit an open house and was the perfect home for you, most listing agents will not accept an offer without a pre-approval letter
It is best to always have a pre-approval letter when going to an open house. This is because you do not know when you are going to run into that perfect home. Plus, if there were multiple interested buyers on the home you are ready to place an offer in, you do not want to lose the opportunity to put an offer just because you did not have a pre-approval letter.
This BLOG On Reasons Real Estate Agents Wants You Pre-Approved Was UPDATED On February 17th, 2020