Mortgage Loan Pre Approval - Why It Is So Important!

You and your family have decided, after talking, that now is really the right time to buy a house, even with interest rates at higher levels!  You sat down and created a Needs and Wants List to help you focus on the homes that meet the absolute must haves in your new home!

But before you actually get out in the car and start looking at houses, you need to get pre-approved for your mortgage.

WHO SHOULD YOU TALK TO?

Your Buyer Agent is the best person to recommend a lender to you.  Not all lenders will offer the same loan products.  If you are a first time home buyer, you may need down payment assistance programs (grants) and not all lenders offer those.  If you are thinking of buying a fixer upper, you may need to talk to a lender that offers renovation financing (not all lenders do).  If you are buying a property that has a manufactured home on it, not all lenders will offer financing for this type of home!  Or maybe you are looking at a piece of property with some acreage - again not all lenders offer this type of financing.  There are a lot of different loan options out there - FHA, VA, Conventional, VHDA - and not all lenders offer all these products!  In addition, different lenders have different credit requirements!  Different lenders have different fees!

So as you can see, there are a lot of options available to you.  Your Buyer Agent is familiar with many of the lenders and can help to make a recommendation to you as to who will give you the best product for your particular situation and the type of property you are looking for!  They may be able to give you several options to talk to so you can see who is going to be able to offer you the best rate, cash to close and monthly payment!

WHAT IS A PRE-APPROVAL LETTER?

A pre-approval letter is not a full loan commitment!  Most lenders have a secured website in which you would input your income, debts, assets, etc.  The lender will then be able to run your credit through their desktop underwriter and, based on the information provided, would be able to give you a pre-approval letter that may be good for 30 or 60 days.  Each lender's requirements for the pre approval letter may vary - some lenders may rely only on the information you provided, while others may want additional documentation to support what you have entered into the website - ex: pay stubs or bank statements.  But keep in mind, this is not the same as applying for a loan.  All the pre-approval letter says is that the lender is willing to lend money to you - pending further confirmation of the details and pending receipt of a contract!

WHY GET A PRE-APPROVAL LETTER?

In a very competitive sellers market, you may be competing with several buyers, including some cash buyers!  By getting the pre-approval letter before you actually go out, you already know the details of the financing before you actually pick out a house - you know how much you can afford and the terms of the loan you will be getting - how much money you need for the down payment, what the payment will be, what type of loan you are getting, etc.

It can also put you ahead of other competing buyers!  With a tight real estate market, a buyer today needs every competitive advantage they can get.  Sellers are going to choose someone who is prepared - they want to know that if they choose your offer that it won't get derailed down the line by some unforeseen financial obstacle!

Having a pre-approval letter also allows you to act faster.  I cannot tell you how many times, a house has come on the market that has all the criteria my buyer is looking for but, because they haven't gotten a pre-approval letter, they ended up losing the house because they weren't in a position to move quickly on it!

Finally, a lender can alert you to financial problems - the lender is going to review your credit history, your income, assets and debts - if you need to have a larger down payment, if you need to resolve inaccuracies on the credit report, if you need to pay down debts - the lender will let you know and will be able to guide you as to how to get these things accomplished so you will be able to buy a home in the future!

REMEMBER ---

You are the only one that can decide how much you can afford to spend on a home - the lender is able to let you know how much you qualify for - which can be very different from what you are comfortable spending on a home!  Your lender will be able to tell you what you qualify for and what that payment is.  But if the payment is higher than what you are comfortable paying each month, then you need to let the lender know what your comfortable payment is each month and they can let you know what price that translates to!  Then let your Buyer Agent know what price point you are comfortable at and don't look at homes that are above that price point!  If you can't find anything at the price you are comfortable paying each month, knowing if you can go above that will help you decide whether you want to bump up your price point to make changes to your housing criteria.  It is all your decision!

FINALLY ---

Having a strong pre-approval letter before going out to search for homes makes for an easier home buying journey.  But what if you are declined for a loan?  Ask the lender what you can do to improve your chances in the future!  Ask the lender why you were declined - there could be a good reason and one that would not take much work to fix.  Ask the lender to show you the credit report that they used to make their decision on - are there mistakes that will need correcting?  If so, correct the mistakes.  And, don't forget, if you are having trouble correcting mistakes on the credit report, you can make a call to HUD to get a HUD approved housing counseling agency to help.  Their phone is 1-800-569-4287.

MY THOUGHTS ---

As you can see, having a strong pre-approval letter is important!  You certainly do not want to go out and look at houses, find one you have fallen in love with - only to find out you can't afford it!  Talk to your Buyer Agent if you have questions - they are there to help guide you through the process!

And, if you are thinking of buying a home, whether it is your first or you have done this before, feel free to get in touch and let's sit down and talk!