The Home Buyers' First Step: Pre-Approval

“I don’t see the point in getting pre-approved until I find a home I’m interested in.” While this may sound reasonable to you as a consumer, the truth is getting pre-approved is the first step in the home buying process…. For a number of reasons. Speaking with a mortgage loan officer can only benefit one looking to purchase a home, and required for all offers that include financing.

Before I delve into reasons as to why you’ll want to get pre-approved prior to starting your home search, let me explain what exactly a pre-approval is. A pre-approval is a written commitment to lend from a mortgage lender to a potential borrower. This conditional commitment to lend typically has a set of criteria that must be met such as:

· Appraisal

· Sale of a current home

· Reduction in debt-to-income ratios

· Obtaining homeowners’ insurance on the subject property

Pre-approvals evaluate your financial standing and reveal any unforeseen obstacles, which need to be remediated prior to the close of escrow. Most common obstacles include low credit score, identity fraud, and income or asset issues. Based off this analysis, your loan officer will be able to educate you on your home search via:

· Discussing which loan products are available and most beneficial to you

· Advising you on the price-point to should focus on

· Potential down-payment grants that are available

· Illustrating any tax credits you’re able to receive by owning a home

· Explaining which properties qualify for your mortgage product

· Preparing an estimate of closing costs

In my opinion – getting pre-approved is the hardest part of the home buying process (and most time consuming). You’ll be asked for recent pay stubs, bank statements, account balances, proof of assets, previous taxes, proof of income, and supporting documentation you probably didn’t even know you had. It’ll take some time to accomplish, but you’ll be thankful you got it all taken care of before looking for a home – the worst feeling is falling in love with a property only to find out you won’t be approved for it.

Okay – so you’ve received your pre-approval, have toured countless homes, and you find the perfect home! Now what? You submit an offer and hope it gets accepted. It’s a hot market, the home is priced right, and you know this is THE ONE so you decide to offer full price with no concessions. Problem is – you know it’s a great deal (as do all the other buyers) and the sellers receive multiple offers. The last thing sellers want is to tie up their home for months with an unqualified prospect. They want to see your ability to perform before signing any contracts. The pre-approval you received conveys you’re seriousness in purchasing a home while illustrating your ability. Before any contracts are signed, the listing agent will ensure the strength of your offer by giving the lender a call to discuss. This is especially true in hot markets. When there’s a shortage of inventory, you’ll be grateful of your ability to quickly pull the trigger when you find the right property. Timing is everything.

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