Is this a bad thing?????

[beanie7132]

We are working with a realtor. The realtor, after asking us every question under the sun, put us in touch with a lender. I like them both, interviewed them both, etc. 

Sent a bunch of stuff to the lender (1040's, W2's, check stubs, bank statements, 401K statements, urine sample <-- just kidding) and was given a verbal "OK" for 180K after he ran our numbers. He said we could go up to 225K. Because we owed a tiny amount this year in taxes (versus the 3K we are still paying on from 2011) we wanted to use this most recent tax return. So I braved the cold world also known as the Federal Tax Office, drove around the block for an hour until I got a parking space and made my way slowly up the line of folks just like me to pay our tax bill and get a receipt. We live in SC so filing electronically is out of the question for us because of the breach with our DOR. We will always file by mail or in person from now on. 

So tonight I sent the lender the copy of the stamped return and the receipt of payment. I asked questions also that included when do we get our preapproval letter and what happens next. I get this in response to my preapproval letter question:

Hey Beanie,

Thanks for getting me all of this.  The next step is you guys having fun looking at houses until you find the right one.  As far as the letter, we hold our cards on that.  What I mean by that is, when you've found a home that you want to make an offer on, *realtors name* and I will confer and I'll send him a letter based on what you guys are offering and asking for.  If the house is listed at $165k and you're planning to offer $155k......you don't want a letter from me that says you're preapproved up to $225k. 

Should it happen this way? Is there something wrong with this? I do trust my realtor, and I would like to trust my lender but having never been through this process before I am terrified. This man already knows my innermost financial soul. What he is saying makes logical sense, if I were to show my letter to others..... I am learning that this home buying process sure doesnt happen like they show it on House Hunters. hahahaha. 

[Jamisonke]

Perhaps there is no need for a preapproval letter because the realtor has a relationship/history with the lender. Perhaps the realtor is willing to accept verbal communication regarding your purchase limit?

For your offer, there should always be a letter specific to the offer. Why provide the seller with a letter showing you are approved for $180k if you are offering less? That would create sound reason for the seller to expect you can pay more.

[beanie7132]

You may be right, it just seems weird that everyone gets a preapproval letter. Its the first thing you do...... and I dont have a physical letter. 

[lisa4856]

I work in real estate. Have been a real estate paralegal for 15 years (doing bank closings and sell/buy closings) and also have my real estate brokers license.  When I was looking for my first home last year I did it the same way your lender is suggesting.   Most lenders just give a blanket letter and thats it... the way your lender is doing it is looking out for your best interest.. say the house you like is asking 300,000 and you offer 289,000 and submit with a preapproval letter stating you are approved up to $310,000... obviously, the other agent is going to advise the sellers that you can pay more than offering and to counter much higher...

[Boop]

That's the same thing our lender did and explained it the same way. 

[beanie7132]

I feel so much better now. Thank you all!

[StartingOver10]

beanie

I am going to give you a slightly different perspective. The way your LO wants to do it is fine if you are still experiencing a buyer's market. If your market has changed, like my market has, where there is a severe lack of inventory and multiple bids on decent properties than your LO's method won't work.

This is the reason why:  say the house is listed at $250k and you decide to offer $240k so the LO generates a PQ letter for $240k or $245k to 'force' the seller to accept a lower amount. Here the seller would then just skip over your offer and go to a stronger offer that can afford  the property. I always position my buyers' as stong buyers and it does not mean that we are paying more for the property at all. It means that the buyer doesn't look like they are just getting in by the skin of their teeth. Think about it carefully. I have won many homes for my buyers at prices that are below list because my buyer looks better on paper than the buyer's that are buying to the max of their budget. Those type of buyers' can lose their pre-approval if any other item comes up during the process. Or their max amount can be adjusted downward if the taxes or insurance end up costing more than the figures used for the approval. That is why it is risky to look like you are maxed out when you are making your offer.

One more point:  I have had listing agents comment on how refreshing it is to work with someone that doesn't misrepresent the buyer's ability by submitting in a lower PQ amount. It doesn't affect the price, because the negotiation of the price is based on comps and condition. If your agent is using your (lack of) ability to afford the property as rationale to pay a lower amount, then you won't get anywhere anyway.

So, blindly putting in a PQ letter just over your offer amount may or may not work in your area.

[IOBA]

Another perspective - I have had realtors refuse to talk to me until I provided a preapproval letter from the bank.  They don't want to waste their time.  I get that.

For the record - I have gone and been "prequalified" or "preapproved" prior to house hunting.  When I find a property I like, I had the lender write a specific letter for that property, so not to give away my full potential.

And in the past, I have had realtors see that I had my preapproved letter amount to be 180k and she insisted on showing me properties that were 225k and above.  Her justification was that we really could afford that and we just had to PUSH our lender to agree.  (I fired her.)

Do what is comfortable for you.  Both methods have merit.

[ezdriver]

That is a silly way to handle something as critical as a preapproval. That way of thinking shows a realtor and lender with "old school" thinking. If that realtor cannot deal with the issue of the difference betwwen what any give buyer is financially CAPABLE of buying vs what they WILL buy, then find another realtor. I have been both a realtor and a mortgage broker. I have never had a problem defending what my buyer is offering just as long as the written preapproval states that they can pay for it.

As a buyer, you want to know on what basis is that lender "approving" you. Their word might be ok for the realtor but it should not be for you.

By the way, it it a real lender or a broker? The latter cannot legally issue a preapproval without first having obtained one with a real lender.