A Pre-Approved Buyer Has the Advantage
The pre-approval process is one of the most important but often neglected parts of the home buying process. A pre-approval should always be obtained before a buyer even begins to shop for a home, no matter how well qualified he or she thinks they are. Today’s mortgage qualification guidelines are full of potential traps that can prevent even a seemingly well-qualified buyer from being approved. A qualified mortgage expert can help a buyer in many ways if the pre-approval process is started early.
First, let’s define the difference between a pre-qualification and a pre-approval.
A mortgage loan pre-qualification is simply an estimate of how much house you can afford and how much money a lender would be willing to loan you. This usually involves verbally providing information on your income, assets, debts, and a potential down payment amount to a lender. That lender would then provide you with an estimate of how much you could afford to pay for a monthly mortgage. There is no cost or commitment on either side. This estimate is just helpful in helping you figure out if buying a home is a viable option, and if so, what your price range would probably be. But, the lender did not verify your credit, income or assets and it may not be worth the piece of paper that it is written on.
Getting pre-approved means that you have a tentative commitment from a specific lender for mortgage funding. In this case, you provide a qualified lender with actual documentation of your income, assets, and debts. This process requires an application and a credit report. Your loan application with credit information should be input into the Fannie Mae/Freddie Mac automated underwriting System to obtain an Approval. These approvals are accepted by all lenders. If there is any doubt about your qualifications, the lender should also review it with an underwriter.
Once pre-approved, the lender will issue a letter of commitment, stating how much money they are able to lend for a home purchase. With a pre-approval in hand you can start your shopping. Real estate agents and sellers will take you much more seriously when they see you have your mortgage funding in place.
It is important to understand, however, that even a pre-approval is still not a guarantee that you will be approved for a mortgage loan. The funding will only be given when the property appraisal, title search, and other verifications check out on the home you have chosen to buy.
The pre-approval only takes a day or two once you provide the income and asset documentation.
Benefits of Pre-Approval
- Allows time to improve credit scores and structure your financing to obtain a better rate. Sometimes just one point in your credit score can affect the rate or even disqualify a buyer.
- Strengthens your offer – particularly helpful when there are multiple offers.
- Sellers will be more likely to immediately accept your offer, because you are giving the seller peace of mind that their home is sold and it’s OK to take the home off the market.
- Enjoy a Faster Closing Period – The lender can speed up the entire processing procedure. Appraisals can be ordered immediately. The process that typically takes about 30-days can be shortened to just two or three weeks, which comes in handy if a seller needs to quickly move and can’t decide which offer to accept.
- Saves everyone time – the buyer, seller, Realtor and mortgage lender
As you can see, a pre-approved buyer has the advantage when shopping for a home. Just make sure that you are being pre-approved by a knowledgeable, reputable mortgage professional that has taken the time to review your documentation, run your credit and provide advice to structure your financing with the best possible terms for you.
Richard T. Cirelli is a 35–year veteran of the mortgage industry and is the owner of RTC Mortgage Corp. based in Laguna Beach. He can be reached at 949-494-4701 or Rick@RTCmortgage.com.
