With Buyers more sophisticated than ever, most of my new clients have already had discussions with their lender or mortgage specialist before they contact me. However, I am still surprised at how many are under the assumption that a pre-approval takes the place of a financing condition in any offers they make. This is usually when I trot out the war stories about the Buyers who waived their financing because the price they were offering was well below the limit placed on them by their lender – only to find out that same lender appraised the property at an amount lower than what the Buyer had actually paid. This leaves a funding gap that can be either enormously inconvenient or financially ruinous. The issue hinges on the appraised value of the property – which is almost always a condition of financing. In other words, you may have been pre-approved, but the property was not. So make sure you don’t make any assumptions that can leave you short changed once your offer has been accepted by the Seller. This is especially critical if you’ve charged ahead in a bidding war thinking you still had wiggle room on price – only to find out your lender thinks you overpaid for the house and is only willing to finance 95% of what you paid for it.

This is an excerpt from my November 2011 E-Newsletter. To read the full issue, click here: Pre-Approvals: Do They Replace A Financing Condition?