As a Real Estate Professional, I consistently have buyers feel they don't need to get approved because they know what they make, and they know what they can afford. However, with all of the changes in the financial market, a lot of people that spoke to a bank 12 months ago and got issued an approval, find the home they want and are no longer eligible for financing. The reason for this is because the financial market has really cracked down on who they will lend money to. Over the past 12 months, minimum credit score requirements have changed drastically, down payment amounts have changed drastically, mortgage insurance premiums have changed drastically, and dozens of other changes have taken place since the housing market crash. A few years ago, a buyer could basically state the income that they make, and state the assets they had, and they could get a loan. Those days are long gone. In my opinion, getting pre-approved for financing is the most important thing that a serious buyer should do before starting to look at a home.
Here are a five reasons why:
1). Getting pre-approved gives the buyer a definite price range to be looking in -
Why waste time looking at homes in all price ranges if you don't know how much money the bank is willing to give you to purchase a home? Getting a pre-approval gives the buyer a clear picture of the price range that they are approved for, and thus, the price range that they should be looking in. Not long ago, I went to the grocery store to purchase groceries with a credit card that, I thought, had enough on it to buy groceries for the family. I spent an hour filling up my grocery cart with all kinds of tasty treats only to find out when I went to check out that my card was declined due to insufficient balance. Talk about embarrassing. Talk about a waste of my time, the cashier's time, and the people behind me in line's time. I was humiliated. Shopping for a home without an approval is the same thing, only worse. You're wasting your own time (probably much more that 1 hour), your wasting your agent's time, and your wasting the seller of the home's time. Spending a few minutes getting pre-approved will not only save you, your agent, and the seller time, it will also save you from getting humiliated because you will know exactly what amount you are approved for.
2). Getting pre-approved gives the buyer a good idea of how much money they will need to have for a down payment & for closing costs.
Down payment requirements have changed. Yes it's true. The bank actually want's the buyer to have a down payment now. I deal with a lot of buyers that still think that they can get a loan with no money down. Yes, there are still a few random loan programs out there that still offer 100% financing, however, those programs are closing like mom & pop grocery stores after a Wal-Mart moved in next door. The majority of the banks these days expect a buyer of a home to have a down payment. Meeting with a loan officer will not only give a buyer an idea of what different loan scenarios are available to them, but it will also give the buyer a good idea of how much money they will need for a down payment, and for closing costs. Once a buyer identifies the loan program that they want, they can get what is called a "pre-approval cost analysis" that will tell them how much money they will need to save in order to buy a home.
3). Getting pre-approved will give the buyer a good idea as to what their payment will be in the price range they are looking for.
Many people go to an online mortgage calculator to find out how much their monthly payment will be. This will give the buyer a ballpark payment for Principal & Interest Payments, but normally doesn't portray the actual payment after including taxes, insurance, and mortgage insurance. Meeting with a loan officer will give the buyer a clear picture of what their payment will actually be after all of the escrows are added on. Why guess when you can know?
4). Getting pre-approved will make the Realtor work harder to help you find a home.
Yes it's true....Realtors will work much harder for a buyer that they know is financially capable of ACTUALLY buying something than they will for someone who may or may not be approved. If I have a buyer that provides me with a solid pre-approval from a bank, I will work day and night until I find them something that meets their needs. If I think it's a crap-shoot, not so much. Test this theory out if you like. Try calling a realtor and tell them that you want them to meet you at a property that's located 3 counties away that you like, and tell them you will provide them with a pre-approval from your bank when you meet. That Realtor will not only arrive early, they will probably have 4 other backup properties to show you in case you don't like that one. On the flip side, call a Realtor and tell them you want them to meet you at a home 3 counties away, and let them know that you aren't sure if you can get a loan, but you still want to look. See my point?
5). Getting pre-approved will make your offer look stronger to a seller.
Sellers don't want to tie up their property with offers where the buyer isn't pre-approved for financing. In fact, I'd say in most cases, a seller would rather accept an offer for less where they knew the money was there, than an offer that was higher that didn't have their financing squared away. Getting pre-approved for financing will make your offer look stronger, you'll be able to act quicker once you find the property you like, and you'll probably get a better deal than you would with an offer without it.
If you are a buyer that is serious about buying a home, go ahead and get preapproved for financing. If you don't know who to call, call Meg Jarstfer with Century Mortgage Company. Her phone # is 270-268-8733. She is the best loan officer I know, and also happens to be my wife. She'll get you approved for financing, and I'll help you find a home. Sound good?
Written By Jason Jarstfer, Realtor w/ Network Realty, inc
Phone # 270-312-2943