The value of obtaining a pre-approval
Pre-approval means you get an approval for a mortgage loan before you make an offer on a home or even find the home you want. (This is in contrast to pre-qualification — a preliminary evaluation of your financial status that does not include a commitment to giving you a loan.) With a pre-approval, you’ll have the benefit of knowing how much home you can afford before you shop. In fact, many real estate agents will ask you to get pre-approved before you begin house hunting so they can show you homes that they know will suit your budget.
Get an edge over other buyers
A pre-approval gives you buying power — the ability to make offers, negotiate price and terms, and even sign a contract to buy. It gives you an advantage over other buyers when you make an offer, because a pre-approval letter proves to the seller and real estate agent that you’re financially ready to buy the home. And that can help make your offer more attractive than an offer without a pre-approval letter attached.
“I already know how much I can afford so I am going to wait to get pre-approved until I find the home that I want.”
Be careful! Many buyers have lost the opportunity to buy the home of their dreams by turning in an offer to the seller without a pre-approval letter. How? It is quite simple…..Example: A HOT new property just came onto the market yesterday and you know it is not going to last very long. In fact, your agent just found out that there are already two other offers on the table. Everything about the home is perfect – price, location and amenities. So you have a decision to make. Do you turn in an offer today without a pre-approval letter or do you wait the extra 1-2 days to obtain the pre-approval and risk losing the home to a quick and more prepared home buyer? In the interest of time, most will choose to turn the offer in without a pre-approval and hope for the best. However, your offer will already be largely disadvantaged. Most pre-approval letters are good for a 90 day period. If you can imagine yourself finding a home you like in the next three months, why not get pre-approved now?
How to obtain a pre-approval
If you have good credit and a steady income, getting pre-approved should be relatively easy. You will need to provide:
- Residence History (2 yrs address and dates)
- Employment History (address and dates)
- 30 Day Paystub
- Possibly W-2’s /Tax Returns from last 2 years
- 30 Day Bank Statement
- Credit report will be acquired by lender
So what is the lender looking for when reviewing the above items? THE BIG THREE:
- The better your score, the better your interest rate
2. Debt-to-Income Ratio
- Total monthly debt / Gross monthly income
(not above 32%)
- Monthly cost of home / Gross monthly income
(not above 43%)
3. Down Payment
- Do you have enough for a down payment?
- There are low down payment programs available including:
– FHA 3.5% Down
– VA /Rural Housing 0% Down
What if I want to shop interest rates after my offer is accepted? Do I have to use the bank that pre-approved me for my actual purchase?
The answer is “No”! Do not feel obligated to use the bank that issued you your pre-approval for your actual home loan. More than likely, if you were approved by one bank than another bank will do the same. The sellers know and understand this. The pre-approval letter that you turned in with your offer is simply there to serve as proof that that you are financially sound and able to obtain a loan to buy.
Coldwell Banker Home Loans
Team Annett Office