Mortgage Pre-Qualifications Are Good (But Pre-Approvals are Better)

A Mortgage Pre-Approval is Your #1 Home Buying Preparation Tool

Before you shop for a home, unless you’re paying cash, get a mortgage pre-approval.

1. Pre-approval tell you what price range you can afford.
2. Pre-approval gives you a competitive advantage over buyers that are prequalified.
3. Pre-approval gives you the ability to compete with cash offers.
4. Pre-approval means Realtors and sellers take you more seriously.
5. Pre-approval means your mortgage process will be smoother and much more efficient.
6. Pre-approval could be the difference between getting the home of your dreams, or not.
   
   

These five advantages should be enough to convince most. However, 42% percent of homebuyers go shopping for a home without a mortgage pre-approval.

Dave and Kelli’s Story

Suppose you ignore this advice and hit the virtual tours in a hot market. What if on day one or day two you find the home of your dreams? This could pose a problem unless you’re paying cash, no one will take your offer, especially in Colorado’s extremely competitive market. You may not even be allowed to view the property in person, or your agent might not be interested in putting you in their car.

Dave and Kelli found out the hard way.

Dave and Kelli jumped the gun and began their home pursuit by searching for properties online.
Once they found a few homes they were interested in, the couple contacted a real estate agent about seeing the properties. The agent asked if they had a mortgage pre-approval letter. Dave and Kelli assured their agent that their credit and finances were impeccable, everything was in order, and there would be no problem.

Get Pre-Approved, Then Shop For Houses

Unfortunately, Dave and Kelli were wrong were wrong. In fact, their offer never even got off the ground because they were unable to produce a pre-approval letter. In many of today’s hot sellers’ markets, a solid pre-approval letter is a must.

To add injury to insult, John and Linda discovered that their finances were not as “flawless” as they had once thought.

Dave had recently made the switch from salaried employee to a self-employed business owner. This alone can make mortgage approval difficult because lenders almost always require that taxes be paid on at least two years of successful, self-employment income before it can be used in calculating your debt to income ratio.

Also, Dave, like many business owners, wrote off a sizable chunk of his gross (before tax) income — and that’s the income most mortgage loan programs use to determine what you can or cannot afford.

Dave and Kelli were embarrassed and disheartened to find out that their purchasing power was only about 80 percent of what they had initially expected. This is just one of several reasons why it’s extremely astute to get pre-approved first, then shop for houses.

Apply here, let’s begin the pre-approval process now!

Sellers Are Pickier Than Ever (and they can be)

It’s a hot market in just about every part of the country, especially in Colorado. Sellers can be far pickier when choosing what offers they are willing to accept. Keep in mind, being pre-approved can also put you on an “even” playing field when competing against cash offers.

In a hot seller’s market, inventory tends to be scarce. Getting pre-approved gives you a leg-up on your competition. A mortgage pre-approval allows you to make an offer with confidence and shows that you are a serious buyer, who has done their due diligence, with the means to purchase a seller’s home.

Many real estate agents will not allow homebuyers to tour their listing or make an offer if the buyers do not have a pre-approval letter from a reputable mortgage lender.

What Is A Pre-Approval Letter?

A mortgage pre-approval letter assures the parties involved with the transaction, sellers that you can complete the purchase of any home, and you have met the loan qualification guidelines.

Mortgage pre-approval also shows you what you can afford to spend and the corresponding monthly payment.

This is important **** mortgage pre-approval is not merely pre-qualification. Many lenders issue “pre-qualification” letters after asking you about your income, debts, and assets, and perhaps checking your credit.

While a pre-qualification letter is better than nothing (at least you put some thought into your prospective purchase), it can’t compete with an offer from a pre-approved buyer.

To secure a mortgage pre-approval, you must complete a mortgage application and submit all required documents. These can include (but are not limited to):

• Pay stubs and W-2s (typically two years)
• Tax returns (usually 2 years if self-employed or you earn commissions or bonuses)
• Bank, retirement/investment statements (2 to 12 months, depending on loan)
• Letters of explanation for derogatory credit
• Divorce decree, if you pay or receive spousal or child support
  
  

Often, one document might trigger a request for another. For instance, a bank statement showing several bounced checks in a single month might cause an underwriter to question your financial management skills. It’s best to resolve these glitches before home shopping.

I hope this helps!

Call me today, 303-668-3350 or apply online, and we can begin the pre-approval process.

Scott Synovic
Colorado's Mortgage Expert
AnnieMac Home Mortgage
www.mylenderscott.com
Direct: 303-668-3350

The information contained in this blog is for informational purposes only and is not an advertisement for loan products. The views and opinions expressed herein are those of the author and do not reflect the policy of any entity other than the author.

Not all applicants qualify. Please meet with the licensed loan originator listed for more information. Rates, fees, terms, and programs are subject to change without notice. Not all loan or products may apply. Loans subject to borrower qualifications, including income, property evaluation, sufficient equity to meet loan to value requirements, and final credit approval. Approvals are subject to underwriting guidelines. Program guidelines and are subject to change without notice. AnnieMac Home Mortgage is an Equal Housing Lender. Licensed by Colorado. Scott Synovic NMLS #253799, Licensed Mortgage Loan Originator in Colorado and California. Not endorsed or sponsored by the State of Colorado or any goverment agency. AnnieMac Home Mortgage NMLS #338923. For all list of our licenses visit nmlsconsumeraccess.org.