Before you buy a home in Maryland, know this about approval letters

When you are ready to purchase a home in Maryland, DC, or Virginia you need to make sure you have your finances in order.  The best way to do this is to obtain a pre-approval letter from a skilled loan officer.  With a pre-approval letter, sellers and other agents see you as a serious contender when shopping for a home.  Without one, you might not be in the running if there are multiple offers.  Think of it as the golden ticket of home buying.

When you plan to purchase a home, the first step is to secure your pre-approval letter.  Written by a lender, this letter typically states how much home that buyer can purchase. The listing agent and the seller know that a financial institution have reviewed your financial circumstances and believe you would be approved. You are on your way.

Securing a pre-approval letter can happen in several different ways.  Some lenders call them pre-approval letters; others call them pre-qualification letters.  I prefer to ignore the technical jargon and focus on what the lender has actually reviewed in order to issue you a letter.

Some banks have a system that, at first glance, seems easy enough.  Fill out your information online, the system pulls your credit, and within minutes, the bank spits out your pre-approval letter.  Magic!  While this may seem like a good idea, it is, in fact, the worst type of pre-approval letter for a multitude of reasons: 

• A loan officer didn’t run any real numbers. A skilled loan officer will be able to run several different home prices, down payments, various loan options, and factor in what loan(s) might fit your needs.
• No human reviewed your financial documents.  Income documentation requirements vary based on how your pay is structured (salary, commission, self-employment, etc.).  Some buyers may not know, for example, that itemized deductions from job-related expenses on your tax returns reduce your income when qualifying for a home loan.  Plus, every property differs based on homeowner’s association fees, taxes, and other variables.
• Getting a pre-approval letter online is a lot like reading a medical diagnosis online and then prescribing your own medication.  You need a professional.  Except in this case, you pay no up-front costs, nor are you obligated if you end up not purchasing.
• The online approvals only really work for the simple 20 percent down, non-condo, below conforming loan limits, salaried borrower.  Even under these circumstances, you will derive a great benefit from working with a live person who can communicate directly with the listing agent about how their loan process works and how well qualified the buyers are, making you a much more attractive buyer.
• If multiple offers are placed on a property, the seller and his/her listing agent may lean toward the offer with the lender they can reach on the phone. 

If you’re in the market for a new home, be prudent.  Find a live lender to write your pre-approval letter.  In taking the time to do things right on the front end, you’ll be more attractive to a seller when the house you really want becomes available.