The "Pre-Approval"

Not that long ago, we had a buyers agent and her clients, meet with us at one of our listings (we were there and preparing for an open house the following day) they proudly displayed the buyers "pre-approval" from a nationally known mortgage company (you would recognize the name instantly....but I digress).  

The agents buyer's pre-approval letter was for $370,000 and the home we represented for our client on was priced to sell at $355,000. They made a full price offer on the spot and we quickly communicated it to our client. They wanted to accept the offer immediately. After that we and the buyers agent were busy getting all of the paperwork finished and the new buyer and his family were having a great time...

...they were excitedly going from room to room and having a wonderful time deciding what would go where and planning for their move into this great house. It featured an indoor pool that they just loved, especially the kids, and for a few minutes there we thought maybe one of the kids was going to dive right in. 

Well they had a great time hanging out and they left with their real estate agent about an hour later. I chatted with their agent briefly and she mentioned that they had been to 8 homes and been looking diligently for nearly a month. They were just so excited to have found exactly the right home for them. 

We were pleased too. No matter how many times you work with people who are purchasing a home, there's so often a really wonderful connection that they feel with the house immediately. It's a transition that is almost instant, suddenly, this isn't someone else's home for sale, this is their new home, the place they will be living in and enjoying. It's really a good feeling and one of the reasons we love what we do. 

"Wednesday, there is a problem with the financing."

Two days later, I get "the call" from the other agent, "Wednesday, there is a problem with the financing. According to the loan officer, now that my buyer is interested in actually getting a home loan, they aren't willing to go any higher than $310,000." Boom! Now in some cases, a buyers agent would actually hope that my client would consider dropping their price. No way. When we do our homework and "price to sell" which for us means that we expect to receive a full price offer from a financially capable buyer within 30 days, we would never expect our client to even consider anything more than the asking price. In this situation, we now knew that the buyer couldn't afford anything close to our asking price and unfortunately for them, they were not going to be able to purchase the house they loved so much! 

So, what happened? The buyers were not actually approved for a loan at a specific price. In fact, they had been given an estimated loan amount without being required to provide any actual income documentation. 

Please be careful, just because a financial institution says that you are pre-approved, that pre-approval may not be worth the paper it is printed on. Assuming you get a printed paper in the first place.