Letter of Funds. Pre-approved vs Pre-qualified
Commitment letter shmamittment letter. What’s the difference between Pre-approved vs Pre-qualified? Well for starters, you’re a complete DB if you’re still trying to get a deal using a commitment letter. But pre-qualification letters or a “letter of funds”…..now that’s a horse of a different color. And a solid Proof of Funds (POF)….well, that’s the Big Red Cadillac of letters, baby! If you plan to go after bank owned and HUD homes and you can’t verify cold hard cash in your bank account, you’re going to need a pre-qualification letter or, at best a solid POF.
Well, other than the fact that you’re trying to compete with guys like me who are showing POF’s of bank accounts holding amounts of cash - you must let the seller know that you give a damn, that you’ve taken the time to meet with a lender, and that you are qualified and for real. Its like opening up your KIMONO and sayin’, “Hey Bud, I’ve got the money it takes to party.”
Just know that most banks won’t even look at pre-qual letters from buyers making offers on REO’s. They want to see cash in the bank. Ask yourself this…If you’re making an offer with a pre-qual letter from a hard money lender, and I’m making an offer on the same house with a P.O.F. that is essentially a print out of my bank statement….which offer do you think is gonna get noticed?
TIP: If you want to play the REO game, you’ll need a solid POF showing that you have “cash money” to buy. Email me if you want to know where to get a genuine P.O.F. letter.
Now, you can be a rocket scientist, a genius of monumental proportions, the top executive “suit” at some major corporation, but that doesn’t mean you can write. In fact, when it comes to written corporate communications, most people are fish out of water. The key to a solid pre-qualification letter is to use the “ABC” rule. (your lender will write this for you)
A – avoid small talk and conversational information; you may be tempted to use an overly conversational tone in your letter in an attempt to befriend the seller – but don’t. The seller doesn’t care about your experience, funny anecdotes from your past or that your kid scored his first goal in soccer last weekend. Keep the content professional, period.
B – be brief; the seller’s time is valuable, so show in your letter that you recognize and respect this by keeping your letter brief and getting right to the point, quickly. Be sure to state clearly that you are, in fact, pre-qualified for a loan and that the pre-qualification is subject to additional review.
C – be courteous; being brief doesn’t mean being blunt to the point or rudeness. Show your appreciation with phrases and words like please, thank you, and appreciate.
Example PreQual Letter:
To Whom It May Concern:
This is to confirm that Joe Investor has been pre-qualified for a purchase/rehab loan for a single family residential property based on a 65% loan to value appraisal, but with no cash out. Please note that this pre-qualification is good for 60 days from the above date and is renewable by mutual written consent.
As always, final loan commitment is subject to the appraised valuation of the property by an appraiser chosen by our firm.
I appreciate your time, and thank you for your cooperation.
Joe Bagadoughnuts Investor & Hard Money Guy Extrordinaire