What amount should you put on the preapproval letter?

I was cutting edge back in the day.  I remember telling buyers and their loan officers why I wanted the preapproval letter to be made out for just the offer amount.  The logic back then was that it comes across better to appear like you “Can’t” go any higher than what you offered verses “Won’t” go any higher.  In fact, you can probably scroll through my blog posts from 7-8 years ago and read more about it.

Times change.

Now everybody does that.  When everybody does it, there is no point in continuing.  The strategy is lost.  Cliche.  Passe.

I don’t do it any more.

Now I spend my time telling buyers and their loan officers why I want the preapproval letter to be made out for the MOST the buyer could purchase.

Today’s market is not only hot, it is fast moving.  You often get one shot to make an offer.  You want to be as attractive to the seller as possible since they likely have multiple offers….and all the offers are good, so the winning offer often comes down to some secondary thing like possession date, waiving inspections or, wait for it, your financing.

All decent realtors know that your preapproval amount is based on your debt to income ratio.  You make an offer of $200k and produce a preapproval letter for $200k, the listing agent either knows you’re bluffing OR $200k is going to use all your debt to income ratio and the loan has more risk of not making it through underwriting.  You produce a preapproval letter that says $275k on that same $200k offer, and suddenly that listing agent knows that you aren’t eating up all your debt to income ratio.

Also, there isn’t any time these days to make an offer with a matching preapproval letter amount, then go back to your loan officer to revise the letter when the offer gets countered for more money.  You’ll lose the house while waiting to get a piece of paper that says you can go a little higher than your first offer was.

A couple of people have wondered if letting the seller know how much you have been approved for somehow means you’ll pay more since they know you could do more.  Well, I’ve been on both sides of that since I do list as many houses as I sell to buyers.  I have never had a seller think that.  And even if they did, you don’t have to pay more than you want……meanwhile it could be the thing that gets you the house in this time of so few houses on the market.

 

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