Pre-underwriting Gives Buyers More Negotiating Power

The market has improved and there is more competition for homes.  Buyers, that need financing, are at a disadvantage against cash buyers or when multiple offer situations occur.  Inventory is low and correctly priced homes, in good condition, end up in multiple offer situations.  Sellers are showing a preference for offers with no conditions on financing.

Buyers always have the choice not to use a financing contingency, but they risk losing their earnest money deposit if they cannot obtain a loan.  I strongly oppose this because it puts the buyer at risk and could cost them thousands of dollars.

Lenders are taking steps to make a buyer stronger against cash buyers and multiple offer situations by pre-underwriting the loan.  What this means, is that the lender is putting the application for a loan through a more rigorous process.  This is done before the buyer enters into a contract to purchase a home.  Most of the time, a lender will issue a pre-approval letter for a certain loan amount.  This pre-approval is a basic check of certain documents to make sure you are credit worthy and can qualify for a loan under a basic set of guidelines.  A pre-approval could be a basic check of:

• Borrowers credit history (credit check)

• Pay stubs

• W-2 Forms

Pre-underwriting is different.  Pre-underwriting involves a complete review of all documentation required, by the lender, for a formal approval.  The concept is to have the underwriting complete before the contract is negotiated.  By doing this, it puts the buyer, who is financing, in a similar position as a cash buyer.  Obviously, being pre-underwritten does not always guarantee a buyer getting a home, but it does increase their chances and makes the buyer more competitive.