What does “Proof of Funds or Pre Approval” On a Listing Mean?
One of my buyer clients saw this phrase the other day on an active listing, and being a client who always follows the instructions from her very favorite, wonderful, knowledgeable and beautiful Realtor (ok, well I get carried away sometimes), she called me to ask this question. Thought I would share this with you all as well.
First, there are two ways essentially to purchase a home. One with cash and Two- with a down payment and loan. There are variations on these, but really what it boils down to is “cash or credit” to coin a phrase from retailers of the world.
If you are one of those fortunate folks who can buy real estate for cash, the world is your oyster so to speak, but to be considered a serious buyer of their property, a seller will require proof that you actually have the money to pay for that cute little cape cod with the hot tub you have your eye on.
Proof Of Funds
will usually come in the form of a statement from your bank, or wherever your money is held, that you actually Have that $495,000 (or whatever you are offering) stashed away and can get your hands on it…(so if it’s in the form of a 10 year cd, that won’t work).
Now, if the funds for your contemplated real estate purchase happen to be in the form of stocks or cds that are maturing etc, a contract can be written to accommodate the liquidation of those funds, and as long as the seller agrees to it, you are home free. Remember, anything can be negotiated in Real Estate, as long as it is in writing with both parties agreeing to it.
So on to the Pre qualification or
These two terms mean that you have actually been to a loan officer to get ready to purchase your home (and no, not every buyer has done this…why, I don’t know, but it is true!)
Pre-qualification means that the loan officer at a minimum has taken down the buyers income, pulled his credit and based on what she sees, gives a statement in the form of a letter that the buyer is tentatively qualified to purchase a home in the amount of …… Now, this really doesn’t mean anything any more, because you can get a pre-qualification letter from those “online” unregulated sites that advertise on TV. Putting in your income and your debts and having a credit report run, will not necessarily qualify you for that million dollar mansion, no matter what the little green puppet says on tv.
Pre approval is more in depth. This is what all sellers (well all sellers that dutifully listen to their Realtors anyway) will require on any potential offer. A pre-approval is where you give your loan officer all the documentation required to qualify you for the loan. Things like
- 2 years worth of tax returns
- 2 months of bank statements
- 2 months worth of pay stubs
- 2 w-2s
- Credit Report- which the loan officer will pull for you…not Credit Karma, or one of the other services…but that’s another post
Now, Can you do some of this online? Absolutely! Most lenders nowadays have an online application that gets the ball rolling and will give your trusty loan officer 90% of what he will need to get a pre approval for you. Here is a word of caution, though…don’t take what the little green Elmo tells you about banks competing for your loan. When you go to one of those sites, what you will get is 500 calls from “potential” lenders, lenders who have “purchased” your information and are trying to get a return on investment. It doesn’t mean they can qualify you, and a lot of these lenders don’t have the ability to offer you all the programs that are available, like Utah Housing, FHA loans, and Rural Housing Loans.
The Bottom Line
The bottom line is…if you are purchasing a home for Cash, you will be required to produce Proof of Funds. If, however, you need a loan, sit down and have a chat with a good lender, who can guide you in the right direction for Your individual needs. And….we are happy to recommend a couple of Good Lenders if you need them. Til next time.