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Pre-Approval For Your New Home

The pre-approval is important for you, the home buyer, as it helps you determine the financial parameters of your next home purchase. Too many times, I’ve heard the stories of potential buyers being frustrated because their hearts were set on homes beyond what they could afford.

For whatever reason, these buyers didn’t go through the pre-approval process, they stumbled upon a home they absolutely loved and had to have…only to find out later the home was beyond their financial capability. Ouch.

And if you haven’t lived through this – and I hope you haven’t! – it’s not fun. This is a major letdown, and one that often taints the remainder of the home buying process.

To avoid this disappointment and to have peace of mind as you move forward in purchasing a home, it is important to know what banks will loan you.  Hence, the pre-approval.

Here are the details:

• Many prospective buyers contact a lender at some point during the home search process to find out what they can loosely afford.  This process is known as “pre-qualification.”  Most lenders can provide you a pre-qualification letter after little more than a 10 minute phone conversation.
• While there is value in obtaining a pre-qualification letter – simply because you will have a better handle on what you can really afford – the hard reality is that a seller will not place much value in such a letter (because a sophisticated seller knows how easy it is to get one of these letters from just about any lender).
• You should take the process one step further, however, and ask to be “pre-approved.” When you become pre-approved, you actually apply for a loan. The lender checks your credit, verifies employment, and often verifies that you have sufficient funds to close. With this process behind you, once you find the home you want to purchase, just about the only thing left to do to complete the transaction is the appraisal.
• The reason savvy buyers obtain loan approval before shopping for a home is that it strengthens their negotiating position when they make an offer. Every seller wants to sell their home to a pre-approved buyer. Not having a pre-approval makes you look unprepared, and, in some sellers’ eyes, not serious about buying their home. Having a pre-approval makes you look prepared and legitimate.  Which is precisely how you want to look!
• Having a pre-approval can also dramatically accelerate the closing process.  Sometimes, when a seller needs to close quickly for some reason, this can translate into a lower sales price for you.  We’ve seen this many times in our careers.
• Because a pre-approval is more detailed and therefore more precise than a pre-qualification, a pre-approval can help you to more accurately determine your price range, which helps you narrow your choices of homes at which to look. You will already know how much you can afford before you even start looking, so the whole home-search process is more efficient.  Not only that, but it can be depressing if you start out looking at homes that you later find out you cannot afford!  It’s hard to look at lower priced homes once you’ve acquired a taste for more expensive properties!

Call me if you would like the name of a quality lender or if you have any questions about the pre-approval process. Also, you can read more about this here.

Happy house-hunting!