Ask an Agent: Why do I need a pre-approval letter if I haven't even found an apartment to buy yet?

For this week's edition of 'Ask an Agent', the pros at The Agency--a tech-savvy brokerage that pays agents bonuses based on client satisfaction, and gives you access to the same database of listings used by professional brokers--take on the question of why New York buyers should lock down a pre-approval letter from the bank before they even think of hitting the open house circuit.

Q: Why do I need to get a pre-approval letter if I haven't found an apartment yet?

"The pre-approval letter is a necessary piece of the puzzle while searching for purchase options throughout the city. Good brokers are hesitant to show clients options without the letter because there isn't a full financial picture of the client at hand, making the process more difficult for the client and the agent. Additionally, I recommend going with a local mortgage broker since he or she can ask you specific questions and see whether your DTI (debt-to-income ratio) checks out to buy in a co-op or whether looking at condos is a better route. (As a rule, co-ops require more liquid assets in the bank than condos.) The mortgage broker can really see your full financial picture and make a judgment on what kind of mortgage you can get approved for. Lastly, in this hectic market, timing is absolutely everything and preparing the pre-approval letter along with your REBNY financial statement and other pertinent documentation puts you in an advantageous position when it comes time to make an offer!" - Greg Vladi, Associate Real Estate Specialist 

"I get this question all the time. Because the NYC market is so competitive and fast, I require all my buyers to have a pre-approval done before taking them out on appointments. To save everyone time (and sometimes heartache) you want to have your pre-approval ready so A) you know how much you can actually afford and B) if you see something you love, you will be able to put a bid in immediately, and avoid missing out on the opportunity. Plus it only takes a couple hours to get, and usually is valid for 60 to 90 days." - Jennifer Lee, VP of Sales

"Can't put the cart before the horse, right? Having a pre-approval letter in hand before looking at homes is essential! It will ease your mind as far as what homes you can afford, and it tells sellers you are a serious buyer that has already done their financial homework. Furthermore, you'll need this letter to make any offers, or it may not be taken seriously.

This is especially true in a market where roughly half of the purchases are all cash—to compete, you need to be armed with a pre-approval.  A mortgage is a contingency, and if you are buying contingent you need to have your ducks in a row. One tip: When you are offering on a home for less than the asking price or less than your approval amount, have your lender write up the pre-approval for the exact amount you are offering, even if you've been approved for more. This way they can't use your finances against you—for example, if you've been approved for a $1 million loan, and you're making an offer at $800,000 then the seller will know you can afford more, and will try to get a higher price from you. However, if your offer and your approval letter both state $800K, then that seems to be the maximum you can afford. Then, you'll be able to see if the owner is willing to part with their property at your price. Eureka!"  - Philip Reynolds, Associate Real Estate Specialist 

"In my opinion, if you're planning to purchase an apartment, one of your very first steps (other than saving up some cash) should be to get a pre-approval letter.  This is not only a surefire way to know exactly what you can afford to purchase, but also the best way to make sure that the apartment’s seller or listing agent will take you seriously as a prospective buyer.

Most prospective buyers are aware of the down payment required for whichever type of apartment they're interested in purchasing (often at least 20 percent of the apartment’s price), but are sometimes unaware of the other costs associated with purchasing.  Luckily, it's a mortgage broker’s job to assess every detail of a prospective buyer’s current credit, income, and liquidity to really know exactly what range a buyer should be looking within.  Though you may have done all of your research and have a specific number in mind, it is always best to make sure that a mortgage expert agrees with you on that number.

Also, would you ever want to go into a bidding war on an apartment without making sure that you have everything that you need to win that war?  Similar to a rental unit, an application without all of the required supporting documents will be passed aside 100 percent of the time when another completed application is submitted.  The problem that many buyers face comes when they assume they will just go out and look at apartments today, and then worry about the pre-approval letter once they find one that they would like to submit an offer on.  What if an agent brings you to your dream apartment today, but another person happens to have a similar dream and all of their documents prepared?  

What it all comes down to is that you're apartment hunting in New York, and great deals won't stay on the market for long.  The process of applying for an apartment to purchase is very detailed, and not something you want to do frivolously.  Getting a pre-approval letter typically takes less than a day to complete, and will give you realistic market expectations and a leg up on a lot of your competition. - Emily Seils, Client Experience Manager