Why the Home Buying Pre-Approval Process is So Important
Buying a home is an exciting experience for a first-time buyer or the savvy investor. In today’s market with all the short sales, REO and bank-owned properties, it is essential the buyer attach a “pre-qualification” or “pre-approval” letter from their lender when they submit an offer to purchase a home.
Buying a home is a time intensive process and it is important for all parties to the transaction make productive use of their time. One way to minimize this time is to be prepared before looking for a home. If you are not familiar with any qualified lenders in the area of interest, please ask your real estate professional. They will always be able to recommend 3 or 4 reliable and trustworthy mortgage companies that gladly would assist you.
In real estate sales, there are different types of letters acceptable to the seller. The prospective buyer must understand the difference between a “pre-qualification” letter, “pre-approval” letter or “cash offer” verification.
A pre-qualification letter, also referred to as a “pre-qual” letter, may be written by a lender after a 15 minute conversation with the buyer. The lender asks the buyer specific questions relating to income, debt, credit, marital status and so forth. In some cases the lender will be able to run a credit report within this time frame. If the answers by the buyer are acceptable to the lender, they can then draft a “pre-qualification” letter for the buyer to submit with their offer. Real estate agents might refer to this letter as a LSR or Loan Status Report.
A pre-approval letter may be initiated when many of the buyer’s qualification requirements have been verified by the lender. The lender has run a credit report to determine FICO score, verified the buyers employment, verified income, debt, and assets.
If a buyer is paying “all cash” for a property, the offer presented must be accompanied by verification of sufficient “cash” assets. A letter from the buyer’s stock broker, accountant, CPA, or bank officer must be generated stating they have the “cash” funds to purchase the property.
A cash transaction in real estate often times will be most attractive to the seller. However, the only difference between “cash” and “pre-approval” is the financing contingency as stated on a purchase contract. Even though a financing contingency is important, one could argue that a “pre-approved” buyer is as strong as an “all cash” buyer. This is especially true if the buyer with a “pre-approval” from a lender does not change their financing status from the time of the “pre-approval” to the close of escrow.
The next time a real estate agent asks you if you have been “pre-approved”, they are looking out for your best interests. This “pre-approval” will allow your agent to negotiate the best price, terms, and conditions on your behalf when you find the home of your dreams.
