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The Loan Process
Part 3 Pre-Qualification or Pre-Approval? In the current market, if you’re going to buy that home, you’ve got to be pre-approved for a mortgage! You probably already know that today’s real estate
market is hot, and that the inventory of properties for sale is very low. This
combination makes for interesting stories from Realtor friends of mine who
entertain multiple offers on homes they have sold. We’re not talking about two or three offers.
We’re talking five and ten and sometimes more. And the offers that seller’s
are reviewing with their Realtor’s are not going to be solely evaluated by how
much over the asking price one offers. The seller’s Realtor is worth their weight in gold at this point, since during this review process they will be advising the seller why to go with one offer over another. Sellers working together with a seasoned Realtor will not likely seriously entertain offers from buyers if they have only been pre-qualified. But why, you say? Because pre-qualification from a
lender is not a commitment. Pre-qualification in today’s market is for people
who know they want to buy, and want some indication as to how much home they can
buy. Information given to a loan agent (verbally and
usually over the phone) is used to determine the potential buyer’s ability to
pre-qualify for a loan. The pre-qualification gives the buyer round numbers
with which to work: how much liquid cash they will need for the down payment, a
total of other assets, and how long it will take to reach credit or savings
goals. Pre-qualification also helps your Realtor in helping
you find the right home for you. There’s no sense in them showing you
“Caddy” when you can only afford the “Chevy”. And you probably don’t
want “Heinz variety” if you can afford the “Yorkshire”. A lender will write a letter to you – and or your
Realtor – advising of your status, and how much home you have been
pre-qualified for, based on the information provided. But no commitment from the lender has been made. On the other hand, a pre-approval letter is an actual
commitment from the lender, based upon certain conditions being met. (The
commitment typically is good for three months.) This is essential for those who
are ready to make offers. To be pre-approved, you must provide your loan agent
with all required documentation. Your pre-approval, once you get it, will be subject to the following three conditions: ·
receipt
of the purchase contract itself (and any conditions it may set forth), ·
a
satisfactory appraisal and, ·
a clear
title report. Any one of these conditions may yield other
conditions, such as the appraisal revealing a bathroom in its final stage of
remodeling. The lender may require the work to be completed as a condition to
the loan. Pre-approval takes a little longer up-front, but
yields big returns. Your Realtor will appreciate your prudence and will
know that you are serious about purchasing, and also ready. You will also be
giving your Realtor the ammunition they need to make your offer in confidence. The pre-approval letter is the best letter you can
attain, and it will make your offer to the seller a true contender.
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