So why do you need a pre-approval letter? And why should you get it before you start looking? Once in a while a Metro Detroit home buyer comes to me without a pre-approval letter. I ask them first if they have one and some home buyers feel they do not need one when they first start looking. They feel confident that they can get one. They have good credit and no debt. So they feel they can get one anytime.
In 2019 most lenders want to see all your documentation before they issue a pre-approval letter. It does not matter whether you are a CEO or a well know bank customer. They will not issue you a pre-approval letter based on what you tell them. The lender has to pull your credit and verify your income based on your pay stubs and w-2 or tax returns. Sometimes if a buyer has borderline credit or little credit they ask for asset statements too.
A lender puts their reputation on the line when they issue that pre-approval letter. If a loan doesn't close and a house deal falls apart becasue of lender issues, it becomes a big issue to everybody involved. It does not happen very often because lenders go deeper into the buyers financials now days.
#1 No seller's agent is going to accept an offer without a pre-approval letter. They just won't do it. So if you find a home and have no pre-approval letter you can't put an offer in.
#2 The number two reason to have a pre-approval letter before you start looking is because sometimes you just can't wait to get that pre-approval letter to put an offer in. I have had 5-10 buyers lose a home because they were not prepared. They didn't listen to me about getting a pre-approval letter. They put it off.
Then they found a house they liked. Then they went to get a pre-approval letter. They had to get everything to the lender and then wait for the letter. Some lenders take a couple of days to do it. During that time somebody else put in an offer and beat those buyers out for the house.
If only they had gotten the pre-approval letter before hand they would be living in the house they wanted. A couple of them were down right angry at the sellers for not waiting for them to get their letter. Unfortunately the seller is not going to wait when they have a good offer in hand.......on the possibility of you getting pre-approved. They do not know you. They do not know that you are a good credit risk and will get approved for their home.
All the seller cares about is the offer in hand and who is qualified to buy their home. In 2018 and 2019 with the low inventory you have to be prepared. There are other buyers out there that want the home too. So be prepared and have your pre-approval before you start looking for a home
Read the below question to learn about pre-approval letters and pre-qualitification and how to know the difference between them.
One 'pre' term leads to another
Steve Tytler
Herald columnist, Published: The Herald, Sunday, January 16, 2005
Question:
I'm thinking about starting to look for a house. My friends tell me I should get pre-qualified for a mortgage first and the real estate agent says I should get pre-approved for a mortgage first. Is there a difference, and is it really important to get the mortgage part taken care of first, before you make an offer to buy a home?
N.J., Bothell, WA.
Answer:
Many homebuyers are confused by the terms pre-qualification and pre-approval. A pre-qualification is simply a quick conversation with a mortgage loan officer, usually over the telephone, to determine how large a mortgage you can afford based on your current income and debt situation. The loan officer takes the numbers you give him or her and runs them through a calculator to come up with your maximum loan amount based on the current interest rates for various loan programs. That gives you a realistic idea of how much home you can afford.
A pre-qualification is just the first step in the mortgage application process. It is not a guarantee that you will get the loan, it just means that you can qualify for a certain loan amount if your income and credit information checks out as stated. However, that is not always the case. You may have overestimated your actual income, or more commonly, you may have underestimated your monthly debt payments or your credit rating may not be as good as you thought.
The only way to know for sure that you will get the loan amount that you want is to get "pre-approved" for a mortgage. That means filling out the loan application form and providing all the required documentation to support your stated income and financial assets, such as paycheck stubs, bank account statements and investment statements.
The mortgage company then checks your credit, verifies your income and financial accounts and puts together a complete loan application file with supporting documentation. Your loan file is then submitted to an underwriter for approval. Most lenders now use automated computerized underwriting systems that can give you a loan approval within minutes.
However, your loan file must eventually be reviewed and approved by a human underwriter before the money is actually released. The underwriter looks over the file to make sure it meets the lender's guidelines for the loan program for which you are applying. If everything is in order, you will receive a "credit approval" on the loan. That means you have a written loan commitment based on your income and credit history - all you need now is a house to go with it.
In most cases, the automated underwriting findings are sufficient to get you a "pre-approval letter" from a lender that you can use when making an offer on a home. Home sellers and real estate agents love to work with homebuyers who have been pre-approved for a mortgage. They will take you more seriously when you make an offer, and you will have more bargaining power because you can guarantee that your deal will close. It's the next best thing to being an all-cash buyer. Home sales sometimes "flip" when the buyers fail to qualify for a loan and the seller is forced to put the house back on the market. By relieving the sellers of that anxiety in advance, you may be able to drive a tougher bargain on the purchase price.
In some cases, being pre-approved can actually make the difference between buying the house of your dreams or losing out to the competition. Homes in desirable areas that are properly priced are selling fairly quickly these days. In some cases, sellers are receiving multiple offers on homes that have just hit the market. The homebuyers who are pre-approved for a mortgage have an advantage over the buyers who have not yet taken that step.
If you are shopping for a home, fill out a loan application today and get pre-approved. I know that filling out forms isn't' a lot of fun, but it is much easier to complete the loan application process while you are calm and relaxed, rather than stressing out over a purchase offer that you just made. There is plenty of pressure involved in negotiating the purchase of a home without adding the stress of applying for a mortgage at the same time.
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