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question about pre-approval letter Sign In/Join 
posted
I've never gotten a loan for a house and don't plan to with this one but the agent down there wanted pre-approval. I understand but does that include my substantial down payment or is that in addition?
 
Posts: 2291 | Location: Arkansas Zone 7 | Registered: Aug 18, 2005Reply With QuoteReport This Post
Picture of Charming
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More and more often sellers are requesting a preapproval (often from a specific lender) from individuals making an offer. Most often it is because they have had an offer on the property and the sale fell through because the buyer was not qualified.

It does not force you to take out a mortgage only shows the seller you are marginally capable of buying the house. The loan officer is not looking at your down payment specifically but your ability to pay in total.

Unless there is major competition to purchase the home, a large earnest money deposit puts your money at risk if there is a problem purchasing and it all falls through. Find out from YOUR real estate agent what is typical for the price of the property.

My questions to you, and many on here will not like these questions
- why do you want to pay cash?
- do you have sufficient reserves to pay for emergencies? New roof, new HVAC, etc.
- this is personal, don't answer on here but check with your financial person, will the funds be coming from your 401K or some other retirement savings? If so there could be bad tax implications on that.

With interest rates still below 5% I'm a big believer in having a mortgage on the property and money in the bank.

This message has been edited. Last edited by: Charming,


Fun and Info
 
Posts: 3586 | Location: Coastal SC | Registered: Jan 10, 2006Reply With QuoteReport This Post
Picture of aychihuahua
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quote:
With interest rates still below 5% I'm a big believer in having a mortgage on the property and money in the bank.


I agree! Cash is king these days.
 
Posts: 5332 | Registered: Jul 12, 2009Reply With QuoteReport This Post
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The money will come from the sale of the house I'm in. I got a letter of approval last night so I guess I'm good.
 
Posts: 2291 | Location: Arkansas Zone 7 | Registered: Aug 18, 2005Reply With QuoteReport This Post
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You only need a Pre qualification letter if you are getting a Mortgage here in my area.If it is a cash offer you may need a Proof of Purchase Ability letter.

Comment to previous reply,why would you get a Mortgage and pay 4% interest on borrowed money instead of cash when your cash in a savings account probably isn't even making 4% in the bank? Because you get a federal or possibly state credit on income tax???? Not sure I follow your reasoning on this.


May
"In Michigan"
 
Posts: 10151 | Location: Michigan,up North,the west side of Perfect | Registered: Sep 14, 2004Reply With QuoteReport This Post
Picture of Charming
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quote:
Originally posted by TcMay:
You only need a Pre qualification letter if you are getting a Mortgage here in my area.If it is a cash offer you may need a Proof of Purchase Ability letter.

Comment to previous reply,why would you get a Mortgage and pay 4% interest on borrowed money instead of cash when your cash in a savings account probably isn't even making 4% in the bank? Because you get a federal or possibly state credit on income tax???? Not sure I follow your reasoning on this.


The interest on a mortgage is one of the very few deductions left for average individuals which is off set by any earnings on most investments. Depending on the OP's tax bracket it can be a wash. Even if the money does cost more than earnings, many people feel more comfortable having cash available for living their life and emergencies. I never wanted to be house rich and cash poor.

The bank is not the only place to invest money. Those are questions the OP should investigate with a financial advisor, whether the bank or a fa professional. In addition if the OP were to be using retirement funds such as a 401K to pay for the property there could be some very significant tax implications and medicare implications. Remember - a 401k is not taxed until accessed and then it is treated as income. That is a mistake my sister made 2 years ago. She and her husband were of the notion that paying cash was better than a mortgage at less than 4% at the time.

All the above are reasons and there are more to discuss any major cash purchase or use of retirement funds with an accountant or financial professional. As a real estate person all I can do is suggest and then recommend discussion with a pro. Many people don't realize there are pitfalls to using all that cash.

As for he pre qual letter - It is more and more common. It is not a bank requirement but a seller requirement. AKA - their house, their rules.

This message has been edited. Last edited by: Charming,


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Posts: 3586 | Location: Coastal SC | Registered: Jan 10, 2006Reply With QuoteReport This Post
Picture of aychihuahua
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Charming, I am so glad you mentioned the possible pitfalls of using retirement money for an all-cash offer. I hadn't realized that. Silly me.
Again, your post was very helpful.
 
Posts: 5332 | Registered: Jul 12, 2009Reply With QuoteReport This Post
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My investment broker is advising me and I trust him. The mortgage banker also said the same thing. The only problem right now is finding a house down there and getting rid of the rest of the junk here. My health is not great so I'm having a tough time.
 
Posts: 2291 | Location: Arkansas Zone 7 | Registered: Aug 18, 2005Reply With QuoteReport This Post
Picture of Charming
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Good luck with the move Sis. I'm glad you're working with someone on making the financial decisions.

I hope you have a good buyer's rep where you plan to move. If you both are on the same wave length it makes the search process easier.

What I do with many of my out of town buyers is have a long conversation about what they want I a house, how much they want to spend (not what the bank says), where in the community they would like to be. It is during conversations your agent will get clues to the best location and house for you. It might be the perfect house for you is a one level townhome.

The next thing I do is send listings for the buyer to review and then ask for feed back. Not that it is too dark or not right - but specific issues. That helps the agent get a good idea of what you want.


Fun and Info
 
Posts: 3586 | Location: Coastal SC | Registered: Jan 10, 2006Reply With QuoteReport This Post
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