Yet, buyers want to look at homes with out being pre-approved. Or they think they will get pre-approved when they find the right home. But if you wait to find the right home and your not pre-approved, your going to miss out on the perfect home in this real estate market. Because of the lack of inventory, many buyers competing for the same home, you don’t have time to wait to be pre-approved before submitting an offer.
No seller will review your offer without a pre-approval letter especially if your are in a multiple offer situation. I will counsel my sellers that we can’t even negotiate an offer until we have all the details of the financing. The financing will dictate how we negotiate.
What is a mortgage pre-approval?
A mortgage pre-approval is a when a mortgage officer preliminarily reviews your credit, income and assets. Once a lender is pre-approved you they issue a letter stating they have reviewed your information and you can afford up to a certain amount for the purchase of a home.
A pre-approval is not a commitment to lend but an opinion on the likeliness of you being approved.
6 Reasons To Get Pre-Approved Early
Here are 6 reasons why it is beneficial to get your pre-approve early rather than waiting.
Get Pre-Approved Early and You Have Time to Fix Credit And Problems
Mistakes happen on credit reports. More often than you think. Unfortunately mistakes take time to rectify. Credit mistakes don’t go away over night, it requires some due diligence on your part.
Also, if you are a borrower with a lower credit score, you may be able to raise your credit score quickly with a few tweaks. In the past year I have had one client raise their score 108 points and another raise their credit score 80 points in a matter of 45-60 days. Many mortgage officers have a system that will give you a punch list of items that will increase your credit score. The report will also give you an approximate credit score increase for each line item.
Why is it so important to fix your credit? Your credit score will impact the loan programs available to you, your interest rate, insurance rates and more…. an 80 to 110 point increase in credit score will save you hundreds of dollars every month, as well as possibly reduce closing costs.
Higher Credit Scores = Save Money
Get Pre-Approved Early and Know With Certainty What A House Will Cost You
Your mortgage lender should be pulling a tri-merge credit report and reviewing at least two years of income and work history, along with several months worth of bank statements.
A mortgage lender cannot accurately quote you a rate or closing costs for your situation without knowing how much money you are putting down for a down payment, pulling your credit and reviewing the rest of your borrower profile. From there they can determine do you need private mortgage insurance and what programs will suit you best. And only than can they quote you an interest rate.
If a mortgage lender has properly pre-approved you, you should walk away being able to figure out what each house will cost you every month.
Get Pre-Approved Early and Real Estate Agents Will Take You Seriously
I get calls all the time from buyers wanting to look at homes that aren’t pre-approved. If you are not willing to take the proper steps in the proper order to buy, you are not showing you are serious.
No real estate agent will want to waste their valuable nights and weekends shuttling around a buyer they are not confident can close becuase they lack a pre-approval. It always the ones who say financing is no problem who end up being a problem.
Get Pre-Approved Early and Prevent Wasting Your Time
Why spend months viewing homes to find out you over estimated what you can afford or worse yet find out you can’t get approved…. period.
Or, believe it or not there are buyers who severely underestimate what they can afford. After they are approved they realize they can afford quite a bit more house than they originally thought
But, in a sellers market, while home are appreciating at a steady clip. home can be appreciating at a half to one percent a month. A $400,000 home today could be worth $420,000 in 6 months.
Either way, you will wast valuable time (and possibly money) looking at the wrong house.
Getting Pre-Approved Early Will Lessen Stress and Urgency
If you are working with a good mortgage lender, once you get pre-approved, you will work on pulling all your supporting documents together and getting your loan application in order. Instead of running around at the last minute when it’s crunch time, you can work on your mortgage at a much more leisurely pace and work on any issues prior to even having a house under agreement.
Once you put a home under agreement your going to have plenty of other tasks to perform as well as pull your mortgage together. Get a head start and lessen the stress.
Getting Pre-Approved Early Will Prevent Last Minute Surprises
By getting approved early on in the process their will be a dialogue with your mortgage officer about interest rates, loan programs, closing costs, etc….. As pointed out earlier you will move forward knowing exactly what a home will cost you and what you will pay in points and closing costs.
But I can’t tell you how many times a buyer will only get financed when they have to because they put a house under agreement. But, because they did not have time to have a dialogue, maybe fix their credit or just have a misunderstanding of what they can actually do, they ending up paying far more for a mortgage or closing costs than the buyers were expecting. One week before closing is not the time to realize how much closing costs are or what your monthly payment will be.
Unfortunately once you are under contract you are in a legal and binding contact as well and to back out can risk losing a significant escrow money deposit.
Getting Pre-Approved Early Will Put You In A Better Negotiating Position
By working out the details of your financing first and having a mortgage officer back up the pre-approval you will be in a better position when it comes time to negotiate.
A listing agent may want to call a lender and ask how you were pre-approved and where you are in the mortgage process. What could be better than a mortgage officer saying your loan is a no brainer and is just waiting for a property to go into underwriting.
A seller does not want to take their home off the market for a buyer with shaky financing. If you give the sellers confidence your financing is squared away it puts you in better negotiating position.
Getting Pre-Approved Early Will Save Your Time, Money and/or Aggravation
Hopefully you can see that taking the proper steps and taking the time to get pre-approved early on in the process, will save you significant time, money and/or aggravation.
Get pre-approved is free. In most cases if you are a W-2 employee it can be done in as little as 24 hours. More complex borrowers may require several days.
Take the time to get pre-approved early and fully understand the process, costs associated with getting a home mortgage, as well as knowing exactly what the mortgage will cost you per month. Then you can move forward with confidence on your purchase.
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Get Pre-Approved Early To Save Time, Money and Aggravation is written by Kevin Vitali of EXIT Group One Real Estate. If you would like to sell your home or buy a new home give me a call at 978-360-0422 and let’s get the process started.
Real Estate Services in the following areas: Northeast Massachusetts, Merrimack Valley, North Shore and Metrowest. Including the following communities and the surrounding area- Amesbury, Andover, Billerica, Burlington, Chelmsford, Dracut, Groveland, Haverhill, Lowell, Melrose, Merrimac, Methuen, Middleton, North Andover, North Reading, Reading, Stoneham, Tewksbury, Tyngsborough, Wakefield, Wilmington, Westford