Buyers get pre-approved before they write an offer. Sellers ask to see a pre-approval letter with an offer. But why??
The intended value of a pre-approval is that it shows credit worthiness. It is not a guarantee the buyer can get a loan. Assuming the lender has done their job, the letter is as close to a guarantee as any buyer or seller can get. However, assuming is a big mistake. Many lenders check credit scores, ask the buyer how much they make, how long they have been employed and how much debt they have. Then they write a pre-approval letter without verifying that the information is accurate. A good lender verifies the information by getting copies of W-2s, tax returns, 2 months supply of bank statements and check the credit score before they offer their expert opinion that the buyer will be able to get a mortgage.
Is this important? As a seller, you don't want to take your house off the market while the buyer gets all their lending in order only to find out they can't afford your house. You may have lost 30 days or more on the market. And as a buyer, do you want to get your hopes up that you are going to buy a house only to find out you really can't afford it? So yes, it is extremely important!
Your agent, whether you are on the buying or selling side, should help you determine if a pre-approval letter is worth the paper it is written on. Believe it or not, a lender can make or break a deal. So if you are a buyer, ask your agent for referrals of good lenders. And sellers, make sure you question the validity of a pre-approval letter before you accept an offer.
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