Get Pre-Approved Before Shopping For a Home
Many families have spent days looking at potential homes online, browsing room-by-room and falling in love with what they see. The excitement builds when they find the home that offers everything they want, and they make an appointment for a showing. Seeing the home in person is the clincher, and the home buyer decides to make an offer. After all this effort, the buyer is informed that they do not qualify for a loan or a loan large enough loan to purchase the home. Disappointment and discouragement will sometimes cause a homebuyer to stop looking.
Therefore, when a person begins the search for a new home, it’s crucial to know that you are qualified. More importantly, you will have peace of mind and confidence once you actually have the pre-approval letter in hand for a home loan.
Before the Pre-Approval Letter
The first step in the purchase of a home is putting your credit in order and to find a mortgage professional or mortgage broker that you feel comfortable working with. Get copies of each credit agency report. Carefully read all the information and make sure residence and employment is accurate. Be sure all your bills are paid on time and that your credit report reflects no payment inaccuracies because your FICO® score is calculated from the information provided by the three major credit bureaus.
Your income level will help the mortgage broker determine your DTI ( debt to income ratio) and give you an accurate purchase price for a new home. There are a variety of factors that will greatly affect your interest rate. Lower credit ratings and scores will equal higher interest rates which will ultimately mean a higher mortgage payment. The amount of your down payment will influence your interest rate as well. The type of loan you are going to get will affect your interest rate and down payment as well as other fees charged in connection with your loan.
Obtaining a pre-approval letter is a very important tool when searching for a new home. Applying for a loan doesn’t take a great deal of time but it does require you to be organized and to be thorough. Providing as much information as you can upfront to your lender, will help ensure that the process will run more smoothly and the less chances you will have any problems or delays in closing.
You will be required to provide the lender with such information as employment, number of years employed at current job, name of employer, amount of income, assets, liabilities, and amount of cash on hand. When your lender requests information from you, it’s best you respond and furnish the information in a timely manner to help prevent any delays in closing. Time is of essence.
The lender will ask for copies of photo ID’s, tax returns, current bills, pay stubs, copies of investment accounts, and bank statements. The lender may ask for additional information not listed here.
Benefits of A Pre-Approval Letter
Before anyone goes home-shopping, they need to know how much they can afford to spend and it allows your Realtor to narrow the search for the perfect home based on the amount you are pre-approved. Searching for a home based on your pre-approved amount will save all parties involved from disappointment and heartache. With a pre-approval you can eliminate homes out of your price range and get down to the business of finding a house that meets the needs of your family. With a pre-approval and a description of the type of home and location you want, your real estate broker will be able to focus on properties that are in your price range.
A pre-approval equals buying power in the home real estate market. Sellers respond more favorably to offers when they know the buyer has been approved for the stated amount of money. You are a serious contender with a distinct advantage over home buyers who neglected the pre-approval process, and you have the bargaining power you need for the home you want.
The fact that the potential buyer went out and took the necessary steps to obtain a pre-approval letter will be appealing to the seller. When your offer is presented it’s more likely that your offer will be considered; many sellers require a pre-approval letter to be submitted along with an offer. Sellers do not want to spend time negotiating back and forth only to find out that the potential buyer cannot obtain financing.
Pre-Approval Letter Versus Pre-Qualified
Though many use these terms interchangeably, there is certainly a difference between being pre-qualified and being pre-approved. Banks will quite often provide home buyers with an informal pre-qualified estimate of what they feel you can afford to spend on a home. It’s important to understand that a letter of pre-qualification holds no guarantee that you will actually be approved for the sum quoted when you are ready to make an offer on a home, because it is based on an opinion.
A pre-approval letter is superior, and it is based on fact. Although it takes a bit of work to apply for and to get approval, it is well worth the effort. Your pre-approval letter states you are qualified to buy a home, helps you refine your search, and gives you negotiation leverage. A pre-approval letter is stronger than a pre-qualification letter because it shows the seller that your lender has done all the necessary work, even as far as submitting your loan request through an underwriting review, to ensure you are qualified to purchase the home. In a low inventory market, a pre-approval letter will make your offer stand out and prevail, and if a quick close is important, you and the seller will benefit since the financing leg work has already been started.
A Quick Review
- Check your credit and make corrections where necessary.
- Go to your bank and complete the paperwork for a pre-approval letter.
- Provide your Realtor a copy of the pre-approval letter
- Make a list of areas where you are willing to compromise.
- Find a real estate agent who is familiar with the location where you are looking and outline your specific needs, followed by any extras you would like if they fall into line with your budget.
If you don’t get pre-approved, you will have saved everyone involved a lot of time and effort. Your Realtor will appreciate your due diligence and will most likely be willing to help guide you through the process to help you get ready for a future purchase of a home.
For those who do not get pre-approved, that doesn’t mean owning a home is out of reach; it simply means you have to get your financial house in order and clean-up your credit profile.
You can hire a professional that will guide you through the process of getting your credit cleaned up which will help raise your credit scores over time and help create a plan that will get you where you need to be financially. There is no shame in asking for help.
Buying a new home is an exciting adventure. If you begin the home buying process with a pre-approval letter from your lender in hand, the process for buying a home will go more smoothly and your offers will be considered by sellers much more seriously. A pre-approval letter is subject to the borrower maintaining good credit and usually remains valid for 60 to 90 days, after which the borrower must reapply in order to be sure the loan offer is still good. You are under no obligation to use that lender for the loan although most home-buyers will.
Remember, before you start touring open houses or before you begin speaking to Realtors about helping you to find a home, give your lender a call and schedule an appointment to get pre-approved for a home loan.
Team Sadler 2015 ©