Pre-Approval letter

[STEPHAN]

What is the name of your state? Florida

I am not familiar with the legal situation of pre-approval letters. I am helping a family member sell his condo. The buyer got pre-approved. The bank told us that his credit did not change since the pre-approval. The condo was approved, and the appraisal was good.

They still said they could not do the loan as the credit score was too bad. The score did not change since the pre-approval.

Do banks have to honor their per-approval letters in any way?

 

[Zigner]

What is the name of your state? Florida

I am not familiar with the legal situation of pre-approval letters. I am helping a family member sell his condo. The buyer got pre-approved. The bank told us that his credit did not change since the pre-approval. The condo was approved, and the appraisal was good.

They still said they could not do the loan as the credit score was too bad. The score did not change since the pre-approval.

Do banks have to honor their per-approval letters in any way?

Nope - the letter will be clear that it is not a guarantee that the funds will be provided.

 

[AlmostThere]

What is the name of your state? Florida

I am not familiar with the legal situation of pre-approval letters. I am helping a family member sell his condo. The buyer got pre-approved. The bank told us that his credit did not change since the pre-approval. The condo was approved, and the appraisal was good.

They still said they could not do the loan as the credit score was too bad. The score did not change since the pre-approval.

Do banks have to honor their per-approval letters in any way?

There are also other things that can change - such as interest rates can go up, and suddenly a buyer who could afford your home when the pre-approval was written, can not. They might need a higher credit score to be eligible for a better rate. Or they could not or could no longer prove adequate funds to cover closing costs, or there was a job change, etc.

 

[adjusterjack]

Pre-approval and pre-qualification mean nothing.

If there is a loan contingency and the buyer loan falls through at the last minute all you can do is give him back his earnest money and look for another buyer.

Did you leave the listing active and allow for back-up offers?

 

[Taxing Matters]

Pre-approval and pre-qualification mean nothing.

They aren't totally useless. They do indicate that the lender already has seen a lot of the documents it would want to grant the loan, which might end up saving time in getting the answer from the lender if it will actually commit to the loan. It generally would indicate a real sincere interest by the buyer in buying a home, too. But that's about the extent of what a seller can safely assume when shown a pre-approval letter.

Pre approval letters are not contracts. Thus neither the home buyer nor seller may rely upon it as a guarantee that the lender will provide the money for the purchase of a home.

 

[STEPHAN]

Okay, I have more information. The pre-approval letter said they were approved for a conventional loan. They confirmed that all conditions were met, and the credit score and appraisal were much better than expected.

Now they say it was a mistake that they were only approved for an FHA loan.

 

[Taxing Matters]

Now they say it was a mistake that they were only approved for an FHA loan.

If the FHA loan proves inadequate to fund the price you are looking for, you'll need to search for another buyer. Since pre-approval letters are not binding, there is no legal action you can take to make the lender give the buyer a conventional loan nor any successful legal action you can take to force the buyer to buy the property at the terms you want.

 

[adjusterjack]

Okay, I have more information. The pre-approval letter said they were approved for a conventional loan. They confirmed that all conditions were met, and the credit score and appraisal were much better than expected.

Now they say it was a mistake that they were only approved for an FHA loan.

It's probably true that you'll be looking for another buyer. But whether you are obligated to return the earnest money depends on the exact wording of the finance contingency.

If the purchase contract was the standard form created by the Florida Realtors Association it will be Paragraph 3B.

Read it carefully to make sure that the buyer complied with it. Note that the contract authorizes you to go directly to the lender for information in case you want to verify what the buyer and/or his agent is telling you.