Importance of a Pre-Approval in a Seller’s Market

By
Real Estate Agent with Compass
https://activerain.com/droplet/4zFp
 
Urban Myth "A pre-approval will lower my credit score" 

I'm often contacted by buyers that want me to show them apartments. Often these buyers do not know how much apartment they can afford. They require financing but have not been in contact with a lender.

I recently spoke with a buyer that was interested in one of my listings. When I asked if she was pre-approved for a co-op loan she told me that she didn't want to get pre-approved because it would lower her credit score. 


An "urban myth" and not a valid reason to not get pre approved before looking for an apartment in Manhattan. A credit score may have a temporary glitch after several inquiries although an inquiry is not an application for credit. This first time buyer told me "she begs to differ" and that she didn't want to get a pre-approval every time she viewed a property

The Importance of a Pre-Approval in a Seller’s Market

The lenders I work with and recommend will pre-qualify and pre-approve a buyer for several months at a specified maximum amount. 


The pre qualification informs sellers and their brokers based upon the information received, the lender is indicating that the applicants’ financial, credit, and income information appear to support their eligibility for the loan amount listed on pre-approval letter. It is not a loan commitment. A loan commitment may be issued following the applicant’s consent to move forward with the loan, the payment of any fees, a satisfactory appraisal and underwriting approval.

Buying a home and getting a mortgage is one of the biggest and most important lifetime financial decisions and a primary reason why a consumer should be concerned about their credit score. In my professional opinion and experience if an inquiry on your credit report from a mortgage lender has an adverse effect that lowers your credit score enough to affect the interest rate offered or your loan eligibility you have bigger issues than a couple of inquiries from lenders. Paying bills on time and paying down debt matters a lot more.

Lenders are competitive. They also know how to read a credit report. They understand a buyer may be shopping for a mortgage when shopping for a home. In fact, if they see their competitor's inquiry on your report it may be leverage to your advantage. If one lender wants the business they may try to offer a better deal than their competitor.


Understanding The Related Costs of Apartment Buying


You'll need to think about more than a mortgage payment to determine if you can afford an apartment in Manhattan. To assure you are purchasing a home within the confines of your budget, you must consider down payment requirements, closing costs, taxes, carrying charges, and yearly maintenance requirements as well.

How much can you afford?


First consult with a mortgage broker or banker to determine how much of a mortgage you qualify for. Calculate the estimated mortgage payment plus monthly maintenance (coop), common charges and real estate taxes (condo).

Several formulas exist to help determine how much a lender will allow a consumer to borrow. One of the more accurate formulas is a front- and back-end ratio. It states that the buyer can afford as much as 28 percent of his or her gross-monthly income toward the monthly mortgage payment, assuming that the consumer's other debt payments (credit cards, car loans, student loans, etc...) are less than or equal to 8 percent of his or her gross-monthly income.

Most NYC coops have more stringent financial requirements than most lenders. Most coops use a 25%-30% debt to income ratio formula. Many coops will only allow a maximum of 75% financing although some will allow 80%. Coops may also require liquid assets available after the closing to cover 2 years worth of maintenance or 1 year of mortgage and maintenance. Every building varies and uses their own formula.

While condos and some coops will allow 90% financing a seller may not want that risk and lenders will require PMI (private mortgage insurance) increasing the debt to income ratio. A minimum 15% or 20% down payment may be required. 

Manhattan mortgage bankers and brokers





Posted by
 
   


©Mitchell Hall 2006-2019

All content/images, unless noted, are the property of Mitchell Hall & may not be used without permission. 

nyc BLOG estate

 
          Call Mitchell Hall @ 917-312-0924
          Email: mh@MitchellHall.com
close

This entry hasn't been re-blogged:

Re-Blogged By Re-Blogged At
Topic:
Lending / Financial
Location:
New York New York County Manhattan
Groups:
Local Expert
Condo Specialists
Condo Benefits
Real Estate Questions & Answers
Tags:
sellers market
mortgage
pre apperoval

Post a Comment
Spam prevention
Spam prevention
Show All Comments
Rainmaker
2,934,972
Nina Hollander
Coldwell Banker Residential Brokerage - Charlotte, NC
Your Charlotte/Ballantyne/Waxhaw/Fort Mill Realtor

Not just in Manhattan, Mitchell. These are important everywhere, including Charlotte where we have lots of multiple offer situations. But even when we didn't, I would allow my sellers to do a final offer acceptance until we had a solid pre-approval. Who wants a nasty surprised 20-30 days later?

Mar 11, 2015 09:22 PM #1
Rainmaker
596,551
Mitchell J Hall
Compass - Manhattan, NY
Lic Associate RE Broker - Manhattan & Brooklyn

Good morning Nina, 

Thanks. I agree. It amazes me how many buyers start the process backwards. They look first instead of getting pre-approved first. In a multi bid situation, if buyer is not prepared to make a strong offer that includes pre-approval chances are they won't get the place. 

Mar 11, 2015 09:51 PM #2
Rainmaker
4,796,309
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

So true, Mitchell, yet so many just want to shop without understanding the process.

Mar 11, 2015 10:15 PM #3
Rainmaker
596,551
Mitchell J Hall
Compass - Manhattan, NY
Lic Associate RE Broker - Manhattan & Brooklyn

Hi Gabe, The woman who "begged to differ" with me about a pre-approval allowed me to unqualify her as a purchaser of my listing before I wasted valuable time showing her the property.  

Mar 11, 2015 11:00 PM #4
Ambassador
2,734,902
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Fair Isaac is clear about the guidelines for dinging credit scores for inquiries.

I believe that one can get 5 inquiries from mortgagees and it only deducts about 2 pts. 

It's those retail and auto sales inquiries that are the problem.

Mar 11, 2015 11:25 PM #5
Rainmaker
596,551
Mitchell J Hall
Compass - Manhattan, NY
Lic Associate RE Broker - Manhattan & Brooklyn

Lenn,

Good point. Buyers should not buy a new car or furniture before their loan closes.

Mar 12, 2015 12:03 AM #6
Anonymous
Total Truth

"When I asked if she was pre-approved for a co-op loan she told me that she didn't want to get pre-approved because it would lower her credit score.

An "urban myth" and not a valid reason to not get pre approved before looking for an apartment in Manhattan. A credit score may have a temporary glitch after several inquiries although an inquiry is not an application for credit."

As a programmer, temporary glitch does not mean a deduction of 2 point per 5 inquires. Maybe it's an valid reason for you to waste your time, but in all truth she was correct to "beg to differ" with you.

Sep 10, 2015 05:39 PM #7
Rainmaker
596,551
Mitchell J Hall
Compass - Manhattan, NY
Lic Associate RE Broker - Manhattan & Brooklyn

It turns out she was not qualified for a coop purchase. Her credit score was the least of her problems.  I beg to differ with you anonymous. If two points per 5 inquires on your credit score has such an adverse affect on your eligibility for a loan then you should not be looking for coops in NYC because you won't qualify. You would need to start paying bills on time first. Thank you for your comment. I stand by my post.

Sep 11, 2015 11:49 AM #8
Post a Comment
Spam prevention
Show All Comments

What's the reason you're reporting this blog entry?

Are you sure you want to report this blog entry as spam?

Rainmaker
596,551

Mitchell J Hall

Lic Associate RE Broker - Manhattan & Brooklyn
How Can I Help You ?
*
*
*
*
Spam prevention