Making an Offer: The Importance of the Lender Letter

I. Hey sellers – I am ready to go!

A lender letter is a document from a loan officer of a financial institution stating that the lender has reviewed a buyer’s preliminary financial information and has pre-approved them for a loan up to X amount subject to certain conditions. When submitting an offer, especially in a competitive market, buyers should obtain a lender letter. First, the lender letter signals to a seller and their agent that the buyer is ready to go, and that obtaining a loan won’t be a problem. Second, the lender letter can serve to differentiate a particular buyer from others who make a comparable offer. Essentially, a lender letter acts as a giant “Pick me! Pick me!” sign for the buyer, and depending on which bank has issued the letter, it may incentivize the seller to pick one buyer over another.

II. The lender letter should be specific to the property.

The lender letter should contain the property address that the buyer wishes to purchase, and be tailored to the specific transaction. For example, if you can afford an $800,000 loan, but only want to buy a $600,000 house, don’t send over a lender letter with the higher number – the seller will ask for more money! Also, the lender letter should be dated within close proximity to the offer. Lending conditions change, so having a recent letter referencing the property is much stronger than a general letter that is 3 months old.

III. Not all banks are the same: I recommend small and local.

The bank issuing the lender letter matters. Whether the lender letter is issued by a big bank, small bank, broker, or internet lender can make a difference when making an offer. Big, national banks tend to have competitive rates, but are too large to close quickly, often causing unwarranted delays because of red tape and impersonal service. Some internet lenders and brokers don’t actually fund loans, acting instead as middlemen. This means the decision about whether to make the loan or not is taken out of their control, and placed in the hands of someone with whom the buyer has little to no personal contact. I prefer local, direct funding from small banks. These banks tend to provide competitive rates, personal service, and can act quickly if problems arise. If a loan issue arises on settlement day, big banks usually give a 1-800 call center number. With smaller banks, buyers usually receive help from a local person that is familiar with their file, and they can often take action quickly to resolve the situation. When sellers are in the process of buying another property, scheduling movers, packing boxes, etc., they want certainty that the buyer’s loan will close on time. Using a small, local bank can offer this peace of mind to a seller, and might even be the difference maker when choosing which offer to accept.

If you need a referral for a good lender, just ask! And when you’re ready to submit a strong offer on a great property……..Buy Smart. Live Well.