The real estate market is a fast-paced and competitive environment, with buyers and sellers continually striving to secure the best deals. In fact, according to the National Association of Realtors, 76% of buyers in 2020 found their homes through a real estate agent or broker, highlighting the importance of well-informed professionals in the industry.

Furthermore, a study by the Urban Institute found that in 2019, approximately 88% of homebuyers used a mortgage to finance their purchase. As a realtor or seller, it is crucial to understand the importance of vetting a pre-approval lender letter that accompanies a purchase contract offer. Pre-approval letters offer a glimpse into a buyer’s financial standing and provide reassurance that the buyer can obtain the necessary financing to complete the purchase.

In this article, we will explore the key factors to consider when reviewing a pre-approval letter, helping you make well-informed decisions and avoid potential pitfalls.

Verify the Lender’s Reputation and Credibility

Before delving into the specifics of a pre-approval letter, it’s essential to first assess the reputation and credibility of the issuing lender. Here’s how to do it:

By thoroughly evaluating the lender’s reputation and credibility, you can gain confidence in the legitimacy of the pre-approval letter and the buyer’s ability to secure financing for the purchase. This process will also help you avoid potential issues and delays during the transaction, ensuring a smoother experience for all parties involved.

Confirm the Pre-Approval Letter’s Authenticity

Unfortunately, fraudulent pre-approval letters do exist, so it is important to confirm the letter’s authenticity.

To protect yourself and your clients, make sure that any pre-approval letters are real. This will help to make sure the transaction goes smoothly and without any problems.

Examine the Loan Type and Terms

A key component of the pre-approval letter is the loan type and terms, as these directly impact the buyer’s ability to secure financing.

Assess the Buyer’s Creditworthiness

Although the pre-approval letter implies the lender has reviewed the buyer’s creditworthiness, it’s wise to scrutinize the details. Look for any contingencies or conditions, such as the buyer needing to sell their current home before securing financing or the loan being contingent upon final underwriting approval. Be cautious of vague or non-specific pre-approval letters that lack concrete details.

Review the Expiration Date

Pre-approval letters typically have an expiration date, often within 60-90 days of issuance. Ensure the letter is still valid and that the closing date falls within the specified timeframe. If the letter is nearing expiration, request an updated letter from the buyer or ask the lender for an extension.

Assess the Pre-Approval Letter’s Language and Clarity

A well-written pre-approval letter should be clear, concise, and easy to understand. Watch out for ambiguous language, general statements, or inconsistent information. A letter with a lack of clarity may indicate that the lender has not thoroughly reviewed the buyer’s financial situation or that there may be hidden contingencies or conditions. A clear and detailed letter demonstrates the lender’s professionalism and the buyer’s commitment to the transaction

Investigate the Lender’s Responsiveness and Communication

A lender’s responsiveness and communication style can significantly impact the transaction process.

By investigating the lender’s responsiveness and communication, you can ensure that you work with a lender who is committed to maintaining open lines of communication and addressing any concerns or issues that may arise during the transaction process. This will ultimately contribute to a smoother and more efficient closing experience for all parties involved.

Examine the Pre-Approval Conditions and Contingencies

Some pre-approval letters may include specific conditions or contingencies that must be met before final loan approval. It’s essential to carefully examine these conditions and work proactively to address them in a timely manner to avoid delays or issues during the closing process. Here’s how to thoroughly assess the conditions and contingencies in a pre-approval letter:

Click here to download the full 9 page guide on “The Art of Vetting a Pre-Approval Lender Letter – A comprehensive guide for Realtors and Sellers.”

When your client’s dream home is on the line, it’s critical to be overprepared when you put in your offer. Every detail counts, especially in a seller’s market where you might be competing with dozens of other offers.

With that in mind, let’s take a look at the five elements you’ll need for every real estate offer. It pays to be prepared!

1) Pre-approval letter

Your pre-approval letter proves that your client has been pre-approved by their lender after reviewing their finances. It’ll also include the amount that the client has been pre-approved to borrow.

Note that the pre-approval letter doesn’t guarantee that your clients will get the mortgage down the line, but it does send an important signal to sellers that your clients are invested in the process. They’ll be more likely to take your offer seriously with pre-approval than without it.

As a final detail, make sure to note the expiration date on your client’s pre-approval letter. Most pre-approval letters expire within either 30 or 60 days of issue, so if your search is on the longer side, you may need a new letter.

2) Proof of funds (EMD)

Next, let’s talk about your client’s proof of funds. EMD stands for “earnest money deposit,” and in a seller’s market, it’s a key differentiator. The EMD is typically requested within a few days of your client’s offer being accepted, and it usually amounts to 1-2% of the home’s purchase price.

Sellers often choose buyers that include an EMD in their offer—especially a high EMD—as proof that their offer is serious and will be honored if it’s accepted.

3) Agent full MLS printout

The MLS printout is the next thing you should include in your offer. The MLS printout serves as a physical record of the listing. It’s an important record of what your offer is tied to, and it can become important if there are any discrepancies in amenities or the home’s condition down the line.

Include it to stay ahead of any and all potential points of contention.

4) Offer letter summary

Your offer letter outlines your client’s intent to purchase the seller’s property. Include the relevant details including the client’s offer price, desired closing timeline, and payment setup (cash vs. financing), and anything else that feels relevant.

While personal letters have become common, sharing details about your client’s personal stories and connection to the home just introduces potential bias and irrelevant information. Keep it short and professional in your offer.

5) Clean copy of buyer signed offer

Finally, make sure to include a clean copy of the buyer signed offer. This is the finishing touch that ties the whole offer together, illustrating to sellers and their agents that you’re devoted to a professional, meticulous experience that runs smoothly for all parties. They’ll appreciate your attention to detail!

Final Thoughts

Ultimately, all real estate agents know that you can never guarantee an offer will be accepted. But you can definitely increase your odds by making sure to include the five items above. Every detail counts!