Do I Need To See A Buyer’s Pre-Qualification Letter When Selling a Home?
What does a buyer’s letter of pre-qualification from a bank or other mortgage lender mean to me if I’m planning to sell my own home? Well, the simple answer is that it’s better than nothing because you know that there is a possibility that your prospective buyers will be able to get a loan to buy your home. But it is certainly not a guarantee of any kind.
Let me start by explaining the difference between a pre-qualification letter and a pre-approval letter, because although they sound similar, those two types of letters are quite different. A pre-approval letter is much better because it means that the lender has verified the income, the source of down payment money and some basic credit history and ratios on the buyers. A pre-qualification letter, on the other hand, is simply the result of a questionnaire. Online lenders and brick and mortar banks will provide a pre-qualification letter without investing any manpower in checking out the buyer at all.
That’s why I say that a pre-qualification letter only tells you one thing, really. It tells you that the prospective buyer was able to fill out a form and receive a fax verifying that he filled out the form. I’m sorry if that sounds harsh, but it’s the basic reality in the market today. It is very little help to me when I sell my own home.
I would much rather see a pre-approval letter which shows that the buyer has been scrutinized a little. Normally the pre-approval letter will include a maximum loan amount and an expiration date. Those items are important because you can see whether the verified loan amount would be sufficient to purchase your home and you can also see if the tentative approval date is current. Once again, even a pre-approval letter is not a guarantee. Actual loan commitment involves an appraisal on the home as well as a thorough assessment of the buyer’s income, credit and debt ratios. Nobody is going to approach you with a loan commitment letter, that’s impossible, because first there has to be a signed sales contract on your specific home, so don’t let yourself get confused if the buyers themselves are confused on all the terminology.
Sadly, a pre-qualification letter is not much more than a sales technique to get borrowers to approach a lender prior to making an offer on a house. The process is far more to the benefit of the lender than to the seller or the buyer at all. Just don’t get too excited about them when you sell your own home.