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Home buyers eager to take advantage of low interest rates are rushing to schedule home tours, just recently allowed in some places as stay-at-home restrictions are eased. To curtail potential exposure to the coronavirus, however, many sellers are trying to limit the number of people traipsing through their properties. To achieve this, real estate agents are suggesting that sellers only admit buyers who have been pre-approved for a mortgage.
A pre-approval letter is a written offer from a lender stating that a potential buyer has been tentatively approved for a mortgage and how much they would be permitted to borrow.
While it is common—and wise—for buyers to speak with lenders before starting a serious home search, many people procrastinate getting pre-approved, since the process involves a lot of paperwork and the approval is typically only good for 60 to 90 days (though it can be renewed, assuming the buyer’s finances and employment status haven’t changed).
“Having a pre-approval letter has long been a preferred requirement by agents when submitting an offer, but having a pre-approval letter before looking at homes given the COVID-19 environment is an absolute must,” says Cara Ameer, a real estate agent with Coldwell Banker Vanguard Realty in Ponte Vedra Beach, Fla. “Sellers and listing agents are cautious about who is coming into their homes, and they want to ensure that only those that are truly qualified are coming through their doors.”
What buyers need to know.
As in non-pandemic times, make sure to shop for the best mortgage rate you can get—it can lead to big savings. In fact, rates offered to a borrower with good credit on a 30-year fixed conventional mortgage can vary by more than half a percent, according to the Consumer Financial Protection Bureau. (Getting an interest rate of 3.0% instead of 3.5% on a $200,000, 30-year fixed loan would translate into roughly $3,500 in savings over the first five years.).
Once you’ve decided on a lender, you’ll have to provide them with documents, including recent pay stubs, two years of federal tax returns and W-2s, proof that you have the funds for a down payment and your recent residential history. The lender will do a hard credit pull, meaning it will impact your credit score though only by about five points. The process typically takes one to three days.
Most sellers are asking for pre-approval letters, but some may accept a pre-qualification or “prequal.” This is a much less comprehensive process, involving a lender verbally asking for a cursory overview of a buyer’s finances. No proof of funds or income is required. As a result, mortgage pre-approval carries more weight with sellers than pre-qualification.
What sellers and agents need to know.
Agents should bear in mind that requiring buyers to present pre-approval letters before showings can potentially raise housing discrimation issues. Sellers who plan to ask buyers to provide proof of mortgage pre-approval must require all buyers to provide it, not just some, cautions Bryan Greene, director of fair housing policy at the National Association of Realtors. “We’ve seen situations where agents don’t appear to apply that requirement consistently,” he says.
Sellers looking for additional measures to make sure tours are safe for all involved have several options. Space out tours by a few hours to allow for proper cleaning and disinfecting. Leave interior doors open and turn on light switches to help buyers avoid touching surfaces. Provide hand sanitizer and shoe covers and require anyone who enters to wear a mask.