Brian and David discuss reading and writing…pre-approval letters, that is! The guys put a microscope to the details of an offer from a buyer and seller perspective, and how this applies to the long and short of the housing market in Southeastern Wisconsin.
This week’s highlights:
- Brian teaches you how to go over a pre-approval letter with a fine-toothed comb
- How drafting two pre-approval letters can increase your leveraging power
- More than half of the U.S. is in a housing shortage, but what does this mean for Wisconsin?
Be choosy about your pre-approval letters
This week, Brian helped a client selling their current home for-sale-by-owner. The asking price was around $540,000, which would constitute a “jumbo” mortgage and a jumbo set of expectations from potential buyers.
The seller received several offers on his home, including one from a long-time area lender, saying:
“Thank you for the time you accorded and insights you provided regarding your present financial circumstances. Based on the current information and credit check we performed, I am happy to pre-approve you to purchase the property… for a conventional 30-year fixed rate at 3.625.”
While this looks good on paper, Brian saw several glaring holes:
1) The loan pre-approval amount was nonexistent in the letter.
Was the buyer pre-approved for the asking price? Brian warns this should be a concrete number.
2) The pre-approval letter should verify the buyer has enough income and assets to afford the home.
A “jumbo” mortgage should see the buyer putting at least 10% down, with reserves, as a safety net.
3) Ideally, the letter should state that the purchase is not subject to the sale of the buyer’s home.
Brian says there’s nothing worse than getting hung up on a deal because the offer is contingent on the buyer.
Double up on pre-approval letters
Brian gave another cautionary tale of a pre-approval letter — two, in fact.
Brian has a client in Minnesota searching for a new home. The client has enough money to put 10% down in the $300,000 range, but Brian did the math, and his client could be less conservative. He could afford up to a $425,000 purchase price with 5% down.
Here’s where 2 pre-approval letters come into play:
Brian helped his client verify the money in his 401K plan as a financial asset to present to the seller. He then could then take out a loan to bump up his down payment.
This way, one preapproval letter shows the buyer can afford the home with 5% kept in his pocket, and the second verifies more assets with all 10% down.
This gives the buyer more leveraging power. No matter how the appraisal comes in, Brian armed the buyer with flexibility and options to show the seller.
Accunet’s home price calculator can help you decide how much home you can afford!
Supply and demand in the housing market
This past week, Freddie Mac published a research insight article titled The Housing Supply Shortage: State of the States.
Of the 50 states, 29 have housing shortages, but Wisconsin is experiencing a housing surplus.
Brian laughs that, “all real estate is local,” and what may be true for Wisconsin overall can change when you slide the scale to Southeastern Wisconsin, where a boom of expensive suburban home builds, and ever-changing middle- income housing has kept buyers on their toes.
However, mortgage rates remain at historic, all-time lows, and now is still the time to purchase or refinance!
As of March 2, 2020, on a $200,000 home with a 30-year fixed mortgage, Accunet can offer a 3.25% interest rate, with an APR of 3.3%.
Don’t delay — get a rock solid pre-approval today, and take advantage of these amazing rates!