Mortgage Pre-approval

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One of the first steps I recommend you take in the home buying process is to obtain a Pre-Approval Letter from a good, reputable lender.  This does take some extra effort, but here are some very important reasons why it is worth it:

First of all, a pre-approval letter is more reliable than a pre-qualification letter.   A pre-qualification letter is issued based on a phone call to a mortgage broker or lender where you provide some basic financial information.  Some web sites also offer this service.  You enter some information, click “submit” and then get a pre-qualification letter that you can print.   On the other hand, a pre-approval letter is issued based on verification of your financial information.  Rather than taking your word on faith, a lender will ask for documentation to confirm your employment and income (paycheck stubs, W-2 statements, etc.), the source of your down payment and other aspects of your financial circumstances.  There is no doubt this takes more time to obtain – and it’s hard to be patient when bit by the house-hunting bug – but the very fact all that information has been verified is why it carries more weight to a Seller when it is time to present an offer.

You’ll know how much money you are eligible to borrow.  Although you may have an idea how much you can comfortably spend each month on a mortgage, you may not know how that translates to a purchase price of a home – therefore price range to search in.  There are other factors that go into a monthly payment amount:  your down payment amount, whether you would need to buy Private Mortgage Insurance (PMI), plus property taxes and insurance premiums.  All of these items are included into the calculation – with your other monthly debt – to determine the maximum monthly payment you would qualify for, therefore the maximum price of a home you can shop for.

You’ll have more leverage in negotiations with the seller.  Sellers prefer to negotiate with pre-approved buyers.  When I represent sellers, I make sure the offers presented are from financially qualified buyers.  Knowing that most agents educate their sellers in the same manner, I want to make sure you are in the best possible position for your offer to be accepted.   This is especially necessary if you are in a multiple offer situation – although it is just plain good business to do this.   When a seller accepts an offer on their home, it essentially comes off the market.  They are putting their faith in you that the purchase will actually go through.  A pre-approval gives the sellers – and you! – this confidence.

A few things to remember:

Pre-approval letters aren’t binding on the lender:  If your financial situation changes, such as a job loss, you finance or lease a car, if you open a credit card (wait on that Home Depot or Lowe’s card until after closing!), or if interest rates change – all of these can affect your credit-worthiness or buying power.

Pre-approval letters are subject to an appraisal of the home you want to purchase:  My job is to help you structure an offer for the appropriate value that will gain you the home, at an amount that is confirmed by the bank appraisal, but there is always a risk – especially in this market with the quickly changing values – that the two numbers may be different.

Pre-approval letters are time-sensitive:  They are generally only good for 60 days.

If you need the name of a good, reputable lender, please fill out the form below:

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