In today’s real estate market, many listing specialists advise their clients against going under contract without underwriting approval. This makes perfect sense but can cause confusion because there is a difference in a prequalification letter and underwriting approval.
Most buyers can get a prequalification letter. These letters are based loosely on information collected by the loan officer. They do not require proof of income, employment, bank statements or other verification. The letter is based off of information provided to the potential lender by the potential buyer.
On the other hand, a preapproval (which can be obtained in a few days) verifies the assets and income prior to issuing the approval. The approval will be based on a dollar amount, but not attached to a specific property. When going under contract, a preapproval can help the sellers be more confident in accepting an offer.
I have seen too many contracts blow up because of financing. Even though a buyer is required to apply within a few days and have at least considitional approval in about 10 days that time removes your home from being advertised to potential buyers. If the buyer cannot obtain financing, the home will return to an active listing, but the sellers cannot get the precious time back that was wasted on an unqualified buyer.