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Most
home buyers know they should get a mortgage
pre-approval letter from a lender before they
begin seriously shopping for a home. But the
reasons for this advice aren't always clear,
and buyers sometimes are dismayed by the amount
of paperwork involved. Here is some of the
reasoning behind the advice:
1. A
pre-approval letter is more reliable than a
pre-qualification letter. Getting a pre-qualification
letter is easy. Ask your REALTOR® to put you
in touch with a mortgage broker or lender.
You must provide some basic financial information,
then wait a few minutes for the letter to come
through your fax machine. Getting a "pre-qual" from
a Web site is just as easy. Enter some information,
click "submit" and voilą. 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 (and possibly more stressful)
than a pre-qualification The additional due
diligence is exactly why the pre-approval carries
more weight.
2. You'll
know how much money you can qualify to borrow.
Most home buyers have a rough idea of how much
they would feel comfortable paying every month
on their mortgage. However, there's no quick-and-dirty
way to translate that monthly payment into
a specific maximum mortgage amount because
other factors -- down payment percentage, mortgage
insurance, property taxes, adjustable interest
rates and so on -- are part of the calculation.
And, you might not be qualified to borrow as
much as you think you should be able to borrow,
depending on your income, your debts and your
credit history.
3. You'll
have more leverage in negotiations with the
seller. Sellers prefer to negotiate with pre-approved
buyers because the sellers know such buyers
are financially qualified to obtain the financing
they need to close the transaction. A pre-approval
letter is an especially favorable point in
a close multiple offer situation. And, you
might feel more confident about making an offer
with a pre-approval letter in hand and the
knowledge that you'll be able to obtain a mortgage.
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 a commission -- will naturally motivate
your agent to devote more time and energy to
you.
5. A
few caveats: Pre-approval letters aren't binding
on the lender, are subject to an appraisal
of the home you want to purchase, and are time-sensitive.
If your financial situation changes (e.g.,
you lose your job, lease a car or run up credit-card
bills), interest rates rise or a specified
expiration date passes, the lender will review
your situation and recalculate your maximum
mortgage amount accordingly.
The
purpose of this newsletter is to stimulate
thought for our clients and professionals
with whom we network. One should consult
with a qualified mortgage planning professional
prior to implementing any mortgage planning
strategies. If you are a legal, insurance,
real estate or tax professional receiving
this newsletter or know of one, please contact
our office to introduce yourself and your
services to us. We are always seeking
to grow our referral network and expose professional
services to our client base. |
