There is a big difference between having a pre-approval and a pre-qualification letter from your lender.
1. Your pre-approval letter is far more reliable than a pre-qualification letter. Receiving a
pre-qualification letter is easy. You simply provide basic financial information to a lender and wait a few minutes for the letter to be sent back to you. Obtaining a “pre-qual” from a random mortgage website is just as easy- just enter some information, click “submit” and voilà you are pre-qualified.
A pre-approval letter, on the other hand, involves verification of the information. Rather than taking your word on faith, the lender will ask for documentation to confirm your employment, the source of your down payment, and other aspects of your financial circumstances. Granted, a pre-approval is more time-consuming than a pre-qualification, but the additional due diligence is exactly why the pre-approval carries more weight with sellers.
Think of the difference between and IOU note and an actual check. With the first, a seller hopes that they can count on your offer to be valid and with the second, they know that your offer is backed by the word of your lender. When the home you want is on the line, you don’t want to take chances against other, stronger offers.
2. You know how much money you can borrow. You likely have a rough idea of how much you would feel comfortable paying each month for your home mortgage. However, there’s no effective way to translate that monthly payment into a specific maximum mortgage amount because other factors such as down payment percentage, mortgage insurance, property taxes, adjustable interest rates and so on may not be part of your original calculation. Being pre-approved takes the guesswork out of how much you hope to borrow depending on your income, debts and credit history.
3. You will have more leverage when negotiating with the seller! Sellers prefer to negotiate with pre-approved buyers because they know you are financially qualified to obtain the loan needed to close on their home. You will feel more confident about making your offer with a pre-approval letter and that can make all the difference in negotiating the price and extras! A pre-approval letter is an especially favorable point in a multiple offer situation.
4. Your real estate agent will work harder on your behalf. A pre-approval letter signals to your real estate agent that you’re a well-qualified buyer who is serious about purchasing a home. The increased likelihood of a closed sale and commission will naturally motivate your agent to devote more time and energy to you.
5. A pre-approval doesn’t take more of your time, but changes the order in which you send in your paperwork. Obtaining pre-approval is simply starting the paperwork earlier – it’s not extra paperwork. It also alleviates stress after you make an offer. In order to buy your home, you will have to collect all your financial documents for your loan officer. Whether you do that before you find a house, or wait until the pressure is on once you are under contract is up to you.
Here are some additional tips on things to avoid during the home buying process to assure your transaction goes as smoothly as possible:
• Don’t apply for new credit of any kind
• Don’t close credit card accounts
• Don’t max out or over charge existing cards
• Don’t consolidate debt
• Don’t change or quit job
• Don’t make any large deposits into accounts
• Don’t make any large purchases
• DO stay current on existing accounts
Fairway Independent Mortgage is happy to help you in any way that we can! Call me today!