The Pre-Approval

You’ve talked with family and friends, perhaps even a real estate agent, and they all say the same thing, “Get a pre-approval!” But you just want to look at homes, as that’s what the house hunting is all about, hunting for your next home.

What if you looked at, and fell in love with, a home that you could not purchase because you couldn’t afford the monthly mortgage payments? How disappointing would that be? It would feel as though you were “settling” for another home, by comparison.

This is why a mortgage pre-approval from a lender is so very helpful. First off, this pre-approval gives you, as the buyer, a goal for your new home’s sales price, and more importantly, a target for your monthly mortgage payment. Secondly, when you submit an offer to purchase a home, you can show the seller that a lender has approved you up to at least the sales price you are negotiating.

Knowing the monthly payment amount, and the corresponding sales price, helps you determine what price point to search within. Searching significantly over that price point, especially in a seller’s market, will lead to disappointment. Either you will find homes that you fall in love with and not be able to afford them, or you fall in love with a home at the upper end of your budget and get out bid in your attempt to purchase the home.

Either way, a pre-approval is your ticket to search. Many professional real estate agents will require a pre-approval from you, before they begin showing you homes. They require this for two reasons, typically. First, they want to make sure that you are seeing homes that you can afford and purchase. Second, they want to make sure their time is used as efficiently as possible. Showing homes over a buyer’s budget is not an efficient use of anyone’s time.

Your pre-approval, from a bank, mortgage broker, or lender will have a few key components to look for: sales price amount, down payment amount, kind of mortgage (FHA, Conventional, VA, etc), term (30 year, 15 year, etc), and may even include the interest rate. There will also be a date through which the pre-approval is good. Typically, this timeframe is 90 days from the time you applied for the pre-approval.

Understand that this is simply the first step in the loan process. Once you submit a bottom-lined offer (an offer agreed upon by both you and the sellers), the lender will then look to you for a lot of documents and statements that back up the claims you made initially, to become pre-approved. The really good lenders will begin to ask for those right up front, when there isn’t a huge amount of pressure to get the documents submitted by a certain point in time.

Need recommendations for a few lenders that will not only issue a solid pre-approval, but will also help you select a mortgage product that makes sense for your current financial scenario? Fill out the form below and I will have a couple lenders reach out to you within 24 hours.

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Todd Waller | Ann Arbor Real Estate | Berkshire Hathaway HomeServices Snyder & Company, Realtors

todd waller | real estate | todd @ toddwaller.com | 734.564.7465

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