Getting Pre-Approved Is Not About Getting a Pre-Approval Letter

by jmaranto

There is often confusion from buyers when it comes to getting pre-approved. Most buyers think that it is about getting the piece of paper known as the pre-approval letter. It’s not.  First and foremost the process is about determining whether you CAN purchase a home (do you have a job or other sources of legal income?, do you have good credit?, and do you have reasonable debts relative to your income?).

Second and finally, the process is meant to help you determine the strategy for you to purchase a home once you have found one that piques your interest.  By strategy I am referring to what is the best and highest use of your money so that you can achieve the most comfortable monthly payment without expending all of your financial resources while allowing you to travel, shop, dine out and save for retirement.

To develop your strategy you will work with your lender to determine:

  1. The maximum amount of home that you could qualify for (regardless of whether or not your intend to spend that much)
  2. The best loan type – Conventional FHA, VA, etc.
  3. The estimated amount for closing cost and pre-paid items in your area.
  4. How much seller help you can ask for to help off-set the closing cost and pre-paid items – varies based on loan type and down payment amounts
  5. Whether there are first time home buyer programs that you would qualify for.

By understanding this information you can then strategize on what the best structure of your offer will be.  Are you going to negotiate more on price or is it better for you to negotiate to get the maximum amount of closing assistance you can get? If you want to conserve financial resources it is always best to negotiate more on getting seller assistance for closing cost and prepaid items. That assistance will result in a dollar for dollar reduction in the total cash to close required on the settlement date. If you want to negotiate more on price, the reduction in your cash to close will only be affected by the percentage of your down payment. For example if you are buying a $200,000 home and you negotiate the purchase price down to $190,000 and you are putting down a 5% down payment you total cash to close will be reduced by $500.00. However, if you request 3% seller help our total cash to close on a $200,000 purchase at settlement will be reduced by $6,000.

So when do you get the actual pre-approval letter? When you make an offer.  Your lender will provide you and your agent with the letter at the exact offer price you are intending to offer on our home of choice. If the offer is countered by the seller at a higher price you will receive a new letter at the new price from our lender.

If you have questions about this topic or need a lender recommendation please call me at 443-564-0952 or I can be reached via email at

Published on 2020-11-06 11:08:51