Ah, the dreaded question most Realtors are hesitant to ask any buyer: "Have you spoken to a lender and gotten pre-qualified or pre-approved for a loan?"
Why are they hesitant to ask it?
Because what they don't want to hear in response from the buyer is, "Oh, don't worry about that. My credit's good." Well, you don't know what you don't know... until you ask.
Look, buying a home can and should be exciting, but it can also be stressful. In today's market where there are more buyers than sellers, the odds of being able to purchase that home you fell in love with can be low. However, getting a mortgage preapproval prior to home shopping can dramatically increase the odds of success.
Any good Realtor will do everything they can to stack the deck in your favor when you submit that offer on a house. Getting a Pre-Approval is not that difficult, and it shows the Seller, not to mention your Realtor, that you are serious about buying a home. Contrary to what many people think, Realtors don't really enjoy running around showing home after home to a buyer who has no idea what he actually qualifies for in a loan.
If you aren't Pre-Approved and you are out house hunting, what do you do when you find the ONE HOUSE that is perfect?
Chances are it already has several offers and will most likely sell within days (if it's new on the market). And here you sit, the perfect house and you can't write an offer as you don't even know if you can afford it. Now, THAT is stressful.
Honestly, it's a waste of the both the Buyer's and the Realtor's time.
The Advantages of Pre-Approval
One of the advantages of having a pre-approval is that this letter can be shown to real estate agents and sellers when looking for a home. By doing so, both the agent and the seller know that the borrower can qualify for a certain amount of funds. It is proof of the borrower's financial standing and ability to proceed with the home purchase.
Another advantage is that some of the work that is involved in obtaining a mortgage is already done. The lender has already examined the borrower's financial situation, including credit, income and assets. During the preapproval process, the lender will also discuss the most appropriate type of mortgage program that fits the borrower's needs, whether it is a conventional loan or a government loan.
This is significant because not all sellers will accept a buyer who is using a government loan. Knowing the details of what type of loan is appropriate for the borrower, the agent can then show them homes that will fit their preapproval both for cost and type of funding.
It Makes the Whole Closing Process Easier
There are three types of Letters showing you are qualified to buy a home:
- Pre-Qualification Letter
- Pre-Approval Letter
- Fully Underwritten
Pre-Qualification: Pre-qualification can be done over the phone or internet, but it does not include an analysis of your credit report or your ability to actually purchase the home. This amount is not a sure thing, more of an idea of what you might be able to buy.
Pre-Approval: You will complete an official loan application and the lender will run an extensive check on your financial background and credit. This letter will specifically indicate the highest amount you can afford when buying a home. With a Pre-Approval you have an distinct advantage over buyers who are only pre-qualified.
Fully Underwritten: More and more mortgage lenders are doing going down this path. As a Buyer this makes sense as you will have submitted all the documentation and financial information the Lender needs to fully underwrite your loan. It takes a few more days to get done than Pre-Approval, but from a Seller's point of view it puts you in a unique category over other Buyers. The Seller knows the Lender has completed the full process and approved you to buy the home today.
So, the Pre-Approval process is very important to obtaining the home you want when you want it. My recommendation to all my clients is to at least get Pre-Approved before we even begin the house hunting adventure.
Discuss all your options with your Realtor today to find out what the best approach is in your market. And if you want to search for homes now, you can visit www.clarkransom.com as well as gain detailed Market Insider information on your area or neighborhood.
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