Plan Ahead: Gain a Competitive Edge with a Mortgage Pre-Approval
By Keith Loria
Although it’s not completely necessary, more and more buyers are taking the time to get pre-approved for a mortgage before they even begin hunting for a house. Not only does a pre-approval letter give the seller power, it also provides prospective buyers with the ability to make offers, negotiate price and terms and even sign a contract to buy a home if one comes along that you love.
In its simplest terms, a pre-approval takes place when a mortgage professional reviews your credit, your income and your assets, and conditionally offers you a particular mortgage, putting that offer in writing in letter form.
“Having a pre-approval letter gives you an advantage over those buyers who don’t when you make an offer because it shows the seller and agent that you’re financially ready to buy a home,” said Joseph Gross, president of the New York-based Qualified Mortgage Inc. “That can help make your offer attractive and keep you out of a bidding war with someone who didn’t think ahead.”
Some future homebuyers think that obtaining a qualifying letter is all they need, but in today’s lending environment, it’s often not enough. A pre-qualified letter simply means that a preliminary evaluation of your financial status was done, but there is no commitment to a loan. You still need to go through the process of finding out if you are eligible once you are ready to buy.
Even though most homebuyers have a general idea of what they would be comfortable paying each month on their mortgage, there’s no way to know what you can really afford until you factor in things like mortgage insurance, property taxes and adjustable interest rates. A qualifying letter won’t do this, but if you are pre-approved, you know exactly how much money you can spend.
This means that your agent won’t be wasting your time showing you houses out of your price range and you can haggle knowing full well what your limit is. Then, if the perfect house comes along, you can act immediately.
Plus, sellers often prefer to negotiate with pre-approved buyers because they already know these buyers are financially qualified to obtain the financing they need to close the transaction.
When you have a written home loan pre-approval, real estate experts say that you have eliminated between 40-60 percent of the potential problems that prevent a real estate purchase transaction from reaching a successful closing.
For more information about being pre-approved for a mortgage, contact our office today.