Is Pre approval necessary?

[Travis Wylie]

I currently have closing in a couple of weeks on my second investment property. My father wants to get into real estate and we put an offer on a house. This realtor that I did a couple walk throughs with wants me to get a Pre approval letter but I'm leery in doing this because of the credit pull that will occur when I'm still in closing on another house. I'm wondering if Pre approval letters are really necessary? I've already sent realtor bank statements showing we enough funds he's already submitted our offer and they came back with a counter offer. Why is it necessary now? This guy was also adamant about signing a buyer's agent contract which I had him amend to only properties that he's helped with. I've never have to do this on the two other properties and was starting to think it's this agent that's "trying to help me out". I figured I'd ask the bigger pockets family on what some of you would do in this situation. Any feedback would be greatly appreciated. Thank you!

[Kevin Hunter]

@Travis Wylie, you are talking about two different things.  You are talking about proof of funds, and your realtor is talking about pre-approval for a loan amount.  The problem here is that you are going to attain financing.  As a result, your deal is likely to be contingent upon financing, correct?  So if you are unable to get financing for a loan on that property, you will not do the deal.  As a result, a seller wants assurances that if they accept your offer, you will be able to close.  They want a pre-approval letter from a mortgage lender that says "Travis is qualified for this amount of a loan, and if you accept his offer, we will fund to that amount."

If you are buying a property for cash, then you can show a proof of funds.  Send the bank statement that shows you have enough liquid in your bank account to buy the property for cash.

If you are suggesting they utilize the bank statement as proof you can get a loan, that is not the case.  Just because you have 100K in the bank, and you are buying a property for 90K, doesn't mean a bank will automatically give you a loan for 90K.  There are a lot of other things that go into the lending process.  How many other properties, how much revolving debt, reserves, etc....

The only way around this in my opinion, is to waive the financing contingency on the contract.  That then tells the seller if you can't attain financing, you will buy the property with the money(cash) in your bank account.  Then, if you walk away from the deal because you can't get financing, they can keep your earnest deposit.  

A pre-approval letter is really not a big problem, and to be honest, if makes the post offer acceptance period much easier because the lender already has all of your documentation, etc... and all they need to do is update a couple of things and fund the loan.  

Good luck!