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Time Home Buyers - The Importance of Pre-approval
Pre-approval can be a very valuable step towards purchasing
a home. Many home buyers get pre-qualified for a home loan
early on, and then become pre-approved before beginning a
serious home search. By completing your mortgage application
prior to choosing a home, you can get a pre-approval letter
stating how much home you can afford.
Your pre-approval
letter lets you know exactly how much you can spend, and it
shows home sellers and real estate agents that you're serious
about buying a home. This may give you leverage in the negotiation
process. Many sellers actually prefer to work with pre-approved
buyers, especially in hot real estate markets.
To find
a mortgage professional and get started with your pre-approval
for a loan, please call or email me. My goal is to provide
you with practical information as you consider your next move,
and I look forward to working with you.
Why Would you get Pre-Qualified for a Home Loan?
Know
Your Borrowing Power
When shopping
for a home in the South Bay you can save yourself a lot of
time, energy, and disappointments by taking time to find out
how much borrowing power you have. With that knowledge you
can focus your search on homes you can afford. In addition,
if you get lender confirmation of your purchase power you
can negotiate with increased leverage and confidence. Thus,
a smart move on your part is to determine your financial qualifications
for a loan before you even begin to look at homes. How can
you do that? Get pre-qualified and/or pre-approved.
Get
pre-qualified
This process will give you a general idea of what you can
afford. It is an estimate based on a surface review of your
income and debt. You can pre-qualify yourself or you can have
either a real estate agent or mortgage lender handle this
for you. If you choose to pre-qualify yourself, you can use
one of the many online mortgage calculators designed for this
purpose. Most mortgage lenders have these calculators available
on their web site.
When lenders
pre-qualify you they ask questions about your income, total
debt, monthly payment obligations, current employment, payment
history, and any negative factors such as bankruptcies. Generally,
they do not perform an analysis of your credit report. They
rely on you to provide accurate financial information. There
is typically no cost for a pre-qualification
analysis nor is there a commitment by either you
or the lender with respect to a future loan.
Get
pre-approved.
The pre-approval process is more detailed and thorough than
pre-qualification. You will be asked to complete a mortgage
application, and some lenders charge an application fee. The
lender verifies all of the information on your application
and reviews your credit report. If you qualify, you will receive
a written commitment – a pre-approval letter – for
a loan up to a specified amount subject to certain terms and
conditions. This commitment is still not a guarantee that
your loan will be approved when you do settle on a home to
purchase. Your loan commitment is finalized after information
about the property, including an appraisal, is submitted and
approved.
Even though
pre-approval is not a loan commitment, it offers a number
of advantages during the home buying process. You know the
maximum amount you can spend so you don’t waste time
looking at homes that are beyond your price range. You are
also more attractive to sellers because you already have financing
squared away. This is really to your benefit in a sellers’
market in which the home of your dreams might have multiple
competing offers. In any market, pre-approval strengthens
your negotiating position because you come to the table with
the money to back your offer.
Pre-approval
can be particularly helpful for first-time buyers as well
as self-employed persons or those paid on commission. If you
are a first-time buyer in competition with similar buyers
who have already demonstrated their ability to meet a monthly
mortgage payment, you may find your offer in a weaker position
in the eyes of a seller. Sellers may also have doubts about
your ability to get financing. Self-employed buyers or those
working on commission sometimes do not have the financial
documentation or “paper trail” of salaried persons.
Some sellers see this as a red flag. A pre-approval letter
in either of these circumstances helps because it demonstrates
that a lender has already considered your financial
situation and is ready to proceed with the loan.
Regardless
of the approach you take, ask your mortgage lender to clearly
explain what is involved in each process and any fees, commitments,
terms, and conditions that apply. Then let the search for
your ideal home begin.
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