Why do Agents ask for a Pre-qual Letter or Proof of Funds?

When you are looking to purchase a home you are working against 3 things: time, other buyers and the seller.

How can the pre-qualification or proof of funds, and pre-approval help with all three?

Let’s start with the pre-qualification, a process that takes maybe 5-10 minutes, can be done over the phone, and requires that you provide truthful information to the lender. Having the pre-qual letter (or proof of funds) assures both the agent and the seller that you are a buyer with intent. And, more importantly, that you are a buyer who knows how much house you can buy.

Since buying a home is such a subjective decision and a lifestyle changer, knowing how much house you can afford will save you time. You can quickly target the appropriate houses. It also saves you the difficult and deflating step of having to downgrade your expectations. By the same token, getting pre-qualified may have the inflating consequence of upgrading your expectations!

When an agent takes you into a house, you are entering someone’s personal space. If you’ve ever sold a home or had an apartment employee enter your apartment when you weren’t home you kind of know that feeling. Not only that, the homeowner is constantly maintaining or quickly making the house presentable for what they want to know is a capable buyer. Some houses are listed with the stipulation that agents may ONLY bring pre-qualified buyers.

The first time the seller sees the pre-qual letter or proof of funds (with account numbers blacked out) is when you present an offer. Prior to that, they are going on faith that the agent has only shown their house to people who can actually afford it. The pre-qual or proof of funds helps the seller take your offer more seriously. However, the pre-qualification letter gives them only a small measure of certainty in accepting your offer.

The pre-qual is a statement by a lender that IF the information you provided is accurate you would QUALIFY for a loan up to the specified amount. Following the pre-qualification comes the actual approval process. In this step the buyer provides proof of all the information the lender needs to give approval for a loan. Without this approval beforehand any offer the buyer puts in on a house is contingent on the buyer getting this approval. There are times when the information given during the pre-qual is not accurate and the buyer and seller both will be disappointed to learn the sale cannot go through.

So imagine if after you get the pre-qualification and start looking, you immediately begin working on getting the approval. You will know with certainty what you can afford, you will save time in your house search, you can close sooner because you will not need a financing contingency, and the seller will be assured that you can buy the house and is more likely to quickly negotiate better terms. The sooner you can get the seller to accept your offer the less likely another buyer can come in and snatch the house from you.

With an approval letter all you need in your offer is an appraisal contingency – this allows the buyer to negotiate a lower price or exit the contract if the house does not appraise for the contracted price. Most home sellers have had a recent appraisal and will be confident of the house appraising for a certain price. So if the appraisal is the only thing standing in the way of your purchase they will be thinking this is a pretty sure thing! Which offer do you think they will accept – yours with a slightly lower price with just an appraisal contingency or another offer with a higher price but also a big IF for financing and the added time of waiting for that financing approval?

Anita Kummer, Assistant to Rhonda Duffy


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