Get Pre-Approved

Get Pre-ApprovedGet Pre-Approved — not Pre-Qualified — for your loan

Because most home purchases require some portion of the purchase price to be financed by a lending institution, in most cases the “correct price range” is heavily influenced by the amount a lender is willing to loan to you, and at what rate they are willing to loan this money.

For this reason it is very important that you begin your “new home search” with a lender, not looking at houses for sale. While most real estate agents (including myself) are happy to spend some time with you “casually looking” at a few houses, the fact is that you cannot do very much of this without knowing the amount of money a lender will provide to you. You simply MUST know what you can borrow and how much you want to spend on a home.

Loan Pre-Qualifying – Slightly Better than Nothing

There is no commitment here, the bank or lender only “gives you an idea” of the mortgage amount for which you qualify based on what you supply them on you financial picture, including debt, income and assets.

A pre-qualifying letter does not include an analysis of your credit or the  in-depth review at your ability to purchase a home.  A prequalification letter is a “nonbinding” document provided by the lender. Nonbinding means that the lender is not required to provide you with a loan for the amount stated in the letter, or for that matter, any loan at all. Because it is nonbinding and because the seller of a property knows it is nonbinding, it has much less value in your negotiations with the seller.

It is not uncommon for buyers to avoid going through the extra hassle of getting a loan pre-approval before they start looking for a home they want to buy. This is unfortunate because you have to go through this “extra hassle” at some point, otherwise you cannot have a loan. What frequently happens when the buyer delays this process is that the buyer has less time to solve financial issues, and make good decisions. These buyers often end up paying a higher interest rate and pay more lender fees than they would have paid if they had gone through the effort of getting a pre-approval early in the game. You cannot avoid the hassle; all you can do is delay it.

 Pre-approval

This is a vital step if you hope to land your dream home. Pre-approval is so important it is often the first step a real estate agent will have you do even before discussing your housing needs and motivation.

Pre-approval will tell you the amount you can borrow, which can determine what you can spend on your future home. Armed with the pre-approval letter, you can assure potential sellers you have the funds to go through with the purchase. This sets you apart as an extremely strong buyer.

With a pre-approval, you will be able to close escrow very quickly after the property has been identified, because most of the work has already been done by the lender. This makes you very attractive to the seller of a property because loan pre-approval dramatically reduces the seller’s risk of entering into escrow with a buyer who cannot complete the transaction.

[blockquote]But in today’s market, it does more than that: Though their numbers are dwindling, investors are still swarming in many markets, and they’ll offer to buy the same house you want for cash. Pre-approval is the next best thing to an all-cash offer.[/blockquote]

A loan pre-approval will be very specific as to the amount of the loan, the interest rate, the length of the loan, closing costs and the minimum down payment required for the loan. A loan pre-approval should always be accompanied by a good-faith estimate which will provide detailed information about the costs associated with obtaining the loan.
 

[blockquote]Knowing your loan limits saves you time and frustration by guiding you to housing that fits within the constraints of your available financing. A signed pre-approval letter gives you confidence; it gives you buying power with sellers.[/blockquote]

Why does it put you at an advantage when dealing with a potential seller?  He or she will know you’re one step closer to obtaining an actual mortgage and that when you make an offer, it won’t be contingent on obtaining financing. In a competitive market, this lets the seller know that your offer is serious – and could prevent you from losing out in multiple offer situations to another potential buyer who already has financing arranged.

MAKE YOUR PRE-APPROVAL MATCH YOUR OFFER
Be sure to mention to your lender that you might come back in the future for a second pre-approval letter – one that lists the actual amount of the offer you intend to make on a house, and not your upper limit. That’s because when you are bidding on a home, it’s better to just focus on your offer, not how much you theoretically could pay. It could hurt your negotiation position if a seller sees that you are pre-approved for $275,000, but you only want to offer $225,000. So while it’s nice to know your upper limit, once you’re ready to submit a purchase offer you may wish to have your pre-approval letter reflect the actual offer amount. Be warned – not all lenders are willing to do this, so it is smart to find this out upfront.

 

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