Who would have thought that “not a short sale” would be a desirable way to advertise?

Here’s the inherent reason why purchasing a home this past year has been such a challenge for many buyers. Believe it or not, it wasn’t because they didn’t want to buy. It had more to do with the way the banks had to conform to the underwriting guidelines set forth by Fannie Mae and Freddie Mac. When requirements are changed, it can eliminate a lot of strong borrowers.

A preapproval letter usually means that a lender has screened a mortgage applicant’s credit history, income and bank accounts, some even verify employment at this stage.  Are they being issued anymore? Preapproval letters are not easily obtained because some lenders don’t want to take risks and will ask that you find the home you want before issuing one. 

Even when a preapproval letter is issued without a property in mind, it usually has conditions attached to it that have to be met before finishing escrow and the home that is eventually chosen may fall under a lot of stipulations. The tedious part about qualifying for a loan is that the lender will ask you for extensive hardcopy documentation upfront, as well as the same documentation, only updated closer to the end of escrow, again. So, you not only have to prove yourself a worthy borrower once, but twice and actually three times if you count your Realtor, who would like to see that letter BEFORE showing you homes.

After the preapproval is issued and for some it can take weeks to receive because it also depends how timely you get your documents into the lender. As you are looking for your home, there is also a document called a commitment letter from a lender that carries much more weight. These are formal “offers” to lend a buyer the funds, with certain terms, for a set amount of time, such as a promised rate locked-in for a certain amount of days in a timeframe.

Whereas the commitment letter seems much more promising than a preapproval letter, the terms that go with it, expire after a certain amount of days and if a buyer is looking at distressed property because they want  a “deal”, it makes the buying process very difficult if they happen to be looking for a short sale that is not yet approved or at bank owned property that has multiple offers that still need to be reviewed by a bank representative. You can see if their funding is no longer good by the time the bank is ready to sell, it can create more paperwork to say the least. When there’s a limited amount of time your loan is good for at a fantastic rate, somehow looking for homes that advertise, “not a short sale or not bank owned” may become a priority. This would be the case, at least for a committed buyer, if they want to use bank financing to purchase their first home.

So, what is the easier route to take when looking for a home if you have a goal for purchasing a home and getting through an escrow in 2011? That’s easy; look for those words, “not a short sale” or find a short sale that’s already approved by the short sale lender. Bank owned homes are also good prospects if you’re willing to compete with everyone else who wants the same “bargain”.