Can a mortgage pre approval hurt you in negotiations?
Buying an Ocala home involves delicate negotiations. Are you concerned that your pre approval will inform the seller that you can afford more than you are offering? If you are, you may be worried that by providing the pre approval, you will be inviting a counter offer at the purchase dollar amount you have qualified for. As a result, you may prefer not to disclose your financial capability until after you have negotiated a purchase price. But would you be wise to pursue this course of action and how can you delay your financial disclosure?
The Mortgage Pre Qualification Alternative
You may simply choose to pre qualify instead of going through the complete pre approval process. After all, you will exert less effort to obtain a pre qualification letter and disclose less information as well.
However, the purpose of obtaining a lender letter is to assure the seller that you will be able to close. Inventory is in extremely short supply and sellers are very reluctant to take properties off the market without such assurances. But a pre qualification letter is issued without the verification of your financial capability. It merely states that if the information you provided is ultimately verified, you will qualify for a mortgage. Therefore, it does not definitively confirm that you will be able to close on the transaction.
A Competitive Edge
On the other hand, a mortgage pre approval process is almost identical to that required for final mortgage approval. Therefore, you must provide the lender with all the financial information normally requested in processing a mortgage application. This information is then reviewed rigorously and a decision is rendered as to the maximum loan amount you qualify for. Additional investigation confirms that you have the funds required to close and that their source has been validated.
Once you receive a pre approval, your next step is to find the home of your dreams, put it under contract and do your due diligence to ensure it qualifies for a mortgage. A title company or real estate attorney must confirm that nothing would prevent the seller from transferring clean title to you at closing. Additionally, inspections, an appraisal and a survey must be ordered. Lastly, you must safeguard your financial capabilities by avoiding incurring additional debt and by protecting your sources of income, to ensure that you continue to qualify for the mortgage loan.
There Is No Substitute For A Pre Approval When Buying An Ocala Home
Clearly, a mortgage pre approval gives the seller much more confidence that you will be able to close on the purchase. As a result, it puts you in a stronger competitive position relative to other offers. It also puts you in a better position to negotiate with the seller. These are the very reasons you seek a lender’s letter in the first place. Therefore, you would be wise to opt for a pre approval in the process of buying an Ocala home. Pre qualifying in order to disclose less information to the seller is not a viable option.
Considerations As To Disclosing A Pre Approval
But is it wise to delay delivery of a pre approval letter to the seller? Should your agent confirm your pre approval and agree to provide documentation only upon the acceptance of your offer? This approach is possible, but not a course of action we would recommend.
Put yourself in a seller’s shoes. You are reviewing two offers and must decide which one to accept. Both offers are similar in price and terms. The first includes a pre approval letter from a reputable lender with very few contingencies. However, the second merely represents that a clean pre approval will be provided upon offer acceptance. I would suspect you would quickly choose the fully documented offer. Therefore, replacing a preapproval with a promise to deliver one at a later date has made the second offer less competitive. This is clearly not a desired result.
A Viable Alternative When Buying An Ocala Home
A better alternative would be to obtain a pre approval and provide it to your agent to hold in confidence. Next, you would request a property specific pre approval letter from your lender when you are ready to present an offer. The lender would then issue a letter to the seller representing that you are pre approved. You may be pre approved to purchase a much more expensive home than you are currently bidding on. However, the lender letter will only address the offer you are submitting. Therefore, you would not be required to disclose your true financial capability.
This approach would put you in the ideal negotiating position. It is common for lenders to prepare pre approval letters in this manner. Therefore, the seller will not necessarily assume that you will not qualify to buy the home at a higher price. However, he or she would be wise to counter only if your offer price is truly unacceptably low. After all, there is no guaranty that you will qualify at a higher counter offer price. Therefore, by countering, the seller takes the risk that you may have no choice but to walk away.
Additionally, the seller has no assurance that you would be willing to pay the higher price in any event. Therefore, he or she faces the prospect that countering the contract may terminate negotiations. In negotiating the buying of an Ocala home, this is exactly the position you want to put the seller in. The dilemma thus created gives you maximum leverage.
Always seek a negotiating edge when buying an Ocala home. Getting expert advice is definitely a good start.
Andrew Kruglanski, Broker
Ocala Home Guide Realty, LLC