A mortgage pre-approval letter is given to you after you are approved for a loan. And you can be approved before you even find a home. In fact, the letter can be a useful negotiating tool. This tip will show you how to use this tool to negotiate a cheaper price on your next house.
The reason to get a pre-approval letter is to show to the seller, that you are able to close. A pre-approval is much different from a pre-qualification. Any loan officer can qualify you in 10 minutes. But that only means that you might qualify for a loan. A pre-approval means that you are ALREADY qualified. So when you submit your offer to the seller, the seller does not have to worry about taking the home off the market while you run around trying to get a mortgage.
This works in your favor when the seller receives two offers at the same time. Even if your offer is lower, the seller might go with you instead of having the uncertainty that the other party might not get the loan.
Now here is an advanced tip:
Once you get pre-approved, get two letters from your mortgage company. One stating the highest amount of loan they will give you, and one for a lower amount.
When you find a house to make an offer on: add the pre-approval letter with the offer to buy the house (the one with the lower amount).
If you offer the seller less than what he is asking, and give him the letter (with the lower amount) he will think that is the highest the bank with lend you and that is the highest amount you can pay.
If he thinks you cannot pay any more, even if you wanted to, chances are good that he will agree to your price if he can.
If the seller still does not agree, you can say that you will try to get your lender to approve you for more so that you can keep the negotiations going.
Do you realize what happened here? We are trying to trick the seller to think that the low price you offered is the best you can do. And you are giving him proof. Except that you are not lying. You never say that this is the best you can do. Let him make his own conclusion from the pre-approval letter. If the house has been on the market for any length of time or the seller has already moved out, or needs to move quickly he will probably take your offer. He will assume that since this is the highest amount you can get a loan for, and if he rejects your offer, he loses the sale. It is very hard for a seller to say no to someone who comes pre-approved.
We have used this technique to help clients save thousands by paying much less for their homes than they expected.
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