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Chris Arco

Should My Preapproval Letter Be for a Higher Amount than the List Price?

Friday, July 31, 2015 - Article by: Chris Arco - 1st Nationwide Mortgage - Message

If you are buying an $650,000 house in Orange County, and you have two buyers, with the same offer (for example: $635,000), and one borrower has a pre-approval of $635,000 and the other has an approval letter between $650k and $750k, othe seller might choose to go with the higher pre-approval amount, even though both are equally qualified. what's concerning is the seller and/ro agent might attempt to squeeze out a higher price from the buyer with the higher pre-approval loan. Even though they both could have equally bought the house, the borrower with the higher pre-approval amount would have their offer accepted simply due to perception, even though the buyer with the lower pre-approval letter may have wanted to increase their offer but may not ever get that opportunity. Most buyer;s agents will agree that they prefer their buyers to have their pre-approval letters to be to the sales price offered on the home and no more. It is none of the seller's business whether they can afford 1.5x the amount or 10% more, only that they can afford and are approved for what the seller is asking.

To make your offer more serious, do it with the earnest money deposit. Make a deposit 5-10% of purchase price. Your offer may be accepted even though it's lower than another offer with 3% earnest money deposit. It is recommend that you don't have a pre-approval letter that is higher than what you like to offer on the home. If you mane an offer that is less than the seller's asking price and your pre-approval letter says that you are approved for a higher amount, the seller(s) and his/her agent will know what you really can afford so you have less neogtiating pwoer in terms of final sales price. They will simply counter back with a higher amount.

It should not take the lender no more than a few minutes to change the pre-approval letter to refect the offer price. Work with a lender like who has your best interests in mind when negotiating a purchase price with the seller.

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