Five reasons why getting a pre-approval letter
is a good idea:
Most home buyers know they should get a mortgage pre-approval
letter from a lender before they begin seriously shopping for a home.
However, the reasons for this advice are not always clear, and buyers
sometimes are dismayed by the amount of paperwork involved. Here
is some of the reasoning behind the advice.
A pre-approval letter is more reliable
than a pre-qualification letter.
Getting a pre-qualification letter is easy. You just call a mortgage
broker or lender, provide some basic financial information, then
wait a few minutes
for the letter to come through your fax machine, click "submit" and
viol'a. 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. Granted, a pre-approval
is more time consuming (and possible more stressful) than a pre-qualification.
However the additional due diligence is exactly why the pre-approval carries
You will know how much money you can borrow. Most
home buyers have a rough idea of how much they would feel comfortable
paying every month on their mortgage. However, there's no quick-and-dirty
way to translate that monthly payment into a specific maximum mortgage
amount because other factors -- down payment percentage, mortgage
insurance, property taxes, adjustable interest rates and so on --
are part of the calculation. In addition, you might not be qualified
to borrow as much as you think you should be able to borrow, depending
on your income, debts, and credit history. This only leads to unnecessary
disappointment and your time wasted. It's best to know exactly what
the banks will lend to you first and then base your criteria on that
A buyer will have more leverage in negotiations
with the seller. Sellers often prefer to negotiate
with pre-approved buyers because the sellers know such buyers
are financially qualified to obtain the financing they need to
close the transaction. A pre-approval letter is an especially
favorable point in a close multiple offer situation. Moreover,
you might feel more confident about making an offer with a pre-approval
letter in hand and the knowledge that you will be able to obtain
A real estate agent will work harder on
the client's behalf. A pre-approval letter signals
to the real estate agent that the buyer is well qualified and
is serious about purchasing a home. The increased likelihood
of a closed sale will naturally motivate an agent to devote more
time and energy to a prospective buyer. In fact, some agents
will not work with a buyer who does not have a pre-approval letter.
Final points: Pre-approvals are not binding
on the lender, are subject to an appraisal of the home you want
to purchase and are time sensitive. If your financial
situation changes (e.g. you lose your job, lease a car, run up
a credit card) interest rates rise or a specified expiration
date passes, the lender will review you situation and recalculate
your maximum mortgage amount accordingly.
RUTH BETHEM, ABR, CRS, GRI, Realtor®
Premier Sotheby's International Realty
4001 Tamiami Trail N, Suite #102
Naples, Florida 34103
Phone: 239-777-7007 or Toll Free 877-777-7545
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