If you are thinking about purchasing a home, you have likely heard that you need to be pre-qualified or pre-approved before you begin the home search process. There is a big difference between having a pre-approval letter and a pre-qualification letter from your lender. With our FairwayNOW app, pre-approvals are fast and easy for homebuyers!
Below are five reasons why obtaining a pre-approval letter is important to your home buying process:
1. Your pre-approval letter is far more reliable than a pre-qualification letter. A pre-qualification letter is easily obtainable by providing basic financial information to a lender, with little to no wait time.
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. While a pre-approval may be more time-consuming than a pre-qualification, the additional due diligence is exactly why the pre-approval carries more weight with sellers.
Think of the difference between an IOU note and an actual check. With the first, a seller hopes they can count on your offer to be valid, and with the second, a seller knows your offer is backed by the word of your lender. When the home you want is on the line, you don’t want to take chances against other, stronger offers.
2. A pre-approval letter will let you know how much money you can borrow. You likely have a rough idea of how much you would feel comfortable paying each month for your home mortgage. However, there’s no effective way to translate that monthly payment into a specific maximum mortgage amount because other factors such as down payment percentage, mortgage insurance, property taxes and adjustable interest rates may not be part of your original calculation. Being pre-approved takes the guesswork out of how much you hope to borrow, depending on your income, debts and credit history.
3. Not only is a pre-approval letter a favorable point in a multiple-offer situation; it also gives more leverage when negotiating with the seller. Sellers prefer to negotiate with pre-approved buyers because they know you are financially qualified to obtain the loan needed to close on their home. You will feel more confident about making your offer with a pre-approval letter, and that can make all the difference in negotiating with the seller.
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 commission will naturally motivate your agent to devote more time and energy to you.
5. A pre-approval does not take more of your time; it only changes the order in which you send in your paperwork. Obtaining pre-approval is simply starting the paperwork earlier — it’s not extra paperwork. It also alleviates stress after you make an offer. To buy your home, you will have to collect all your financial documents for your loan officer. It is up to you whether you do that before you find a house or wait until the pressure is on once you are under contract.
I would love to teach you more about pre-approval letters and even help you obtain one. Call me today to discuss your home buying options.