Pre-approval for a Home Loan Makes You a Quality Home Buyer
Do you need a pre-approval to “get” the house
Remember that a pre-approval when getting a home loan makes you a quality home buyer. Most home buyers think that all they need is a pre-qualification (PQ) letter. Not so. PQ letters you can find online and fill them out yourself. Most lenders freely hand out a PQ without doing a diligent check. A pre-approval confirms that the lender did check your ability to buy and is willing to lend you the money, a strong statement when there are other offers.
If you are a serious buyer, prove it…get Pre-approved for a home loan.
A Pre-approval is an in-depth analysis of your ability to qualify for a home loan. The lender will analyze all of your documentation including assets, debt, and credit. The lender will also discuss any concerns with the underwriter. They will then run your documentation through desktop underwriting for an approval that confirms your financial profile looks good.
Getting Pre-approved also ensures that you have a breakdown of all your costs/money needed and are searching in the right price point for a home.
Home buying is easier with a home loan Pre-approval
The resale market is competitive and you need to be ready with a pre-approval letter for financing. It is essential to have this information sorted out before you start looking. It is a seller’s market and some sellers only want to show a home to a buyer with a pre-approval. Sometimes, the seller wants to see proof of buyers qualifications before scheduling an appointment.
Your offer will not be considered by the seller until they receive your Pre-approval letter. A true Pre-Approval can give buyers a leg up in negotiations. It gives the seller the confidence, that your Pre-approval for a home loan is something they can depend on.
Avoid unexpected home loan surprises in the New Construction Market
When it comes to new construction homes some home buyers take a different approach. Buyers will find the home first, then get Pre-Approved after they go to contract. This is not an advisable strategy at all. Buyers may not get the most favorable loan terms and could find unexpected surprises. You cannot get out of the contract, if you end up with loan terms you don’t like.
A Pre-approval gives the buyers all cost factors before they get locked into a contract. Here is a typical story: Buyers took time off of work looking for a home, lost sleep over worrying and hoping that everything would work out. They finally found the home of their dreams. Builder writes up the contract, and they apply for a mortgage with the builder’s lender. The builder’s lender said they could not do their loan. What a disappointment!. However, they quickly got approved with another lender, but at a higher rate. The decision to delay getting a pre-approval did not come without risk. They found out they need a co-signer. Because the buyer was not utilizing the builder’s lender, the contract was also not contingent on financing which means $60,000 of buyers deposits were at risk if they could not close. In addition, there were no closing cost incentives provided using an outside lender, which means they had to pay more money out of pocket.
Had the buyers conducted the Pre-approval with the builder’s lender before going to contract, it may have to give them pause to sign a risky contract.
A Pre-qualification (PQ) never means much. True Story: Buyers had been Pre-qualified for a loan through their bank. Then they went under contract on a new home and were told they were not approved for a loan unless they paid off some significant debt. Surprise, surprise to the buyers! It always pays to get pre-approved.
Not getting the loan type you thought. Another example: Buyer went under contract thinking they were eligible for USDA loan which requires a zero down-payment. Later they learned they did not qualify. The buyer was forced to switch to a less desirable FHA loan, which required more money for the down-payment. The builder’s contract will not release you from the contract if you do not like the loan type.
You may not be able to get out of the contract if you do not like loan terms. If the payments were higher than expected or you are uncomfortable with interest rates, its too late. That is not a reason you can back out of the contract on a new home purchase.
When maximum loan amount is less than you think. With new homes, you are not always sure of your total purchase price until after you sign the contract and get to the builder’s design center. At the time you make your upgrade selections, is when you know the total cost. Your cost may be higher than expected, so you might not be able to build the house that you want.
Another story: Buyers were pre-qualified with a local bank for $300,000. They relied on that to select a house and upgrades, but when they went through underwriting, the story changed. The bank was only going to give them $270,000 which they called a “Confidence Now Approval”. What the bank initially issued was totally bogus. The letter says the buyer went through a limited underwriting review. Not so, there was no verification of documents submitted. Now the buyer cannot put any upgrades into the home because loan amount just covered base price, plus structural options. The buyer is borrowing $15,000 from a relative to close on the home. It’s unfortunate the bank did not really Pre-Approve the buyer as they claimed.
Unexpected credit issues: After the contract was signed and credit was pulled, the buyer found a substantial amount of debt that was an error on their credit report. Fortunately, they had ample time to correct it before closing because the home was going to take seven months to build. Not all buyers have time on their side.
Don’t gamble on your ability to qualify…get a pre-approval for your home loan.
Discover the Red Home Buying Flags Before You Shop for a Home
Buyers may think they have enough money for a loan, but there may be extra money needed that they were not aware of. Buyers do not realize red flags lurk in their financial picture. This is why a good lender needs to thoroughly look at your financial documents before you shop for a home. Ask us for a recommendation. 407-539-1053.
Here are the most common issues divided into Credit, Assets, and Income:
- Late payments
- Collections or judgments
- Deferred Student loans
- Disputed accounts
- Co-signed loan for relative
- Large cash deposits that are unseasoned
- Not enough funds to cover closing costs or post-closing reserves
- Gaps in Employment
- Recent changes in employment or job responsibilities
- Self-employed less than 2 years
- Tax returns show Schedule E losses
- Tax returns showing alimony payments
- Supplemental income that is inconsistent
- Fluctuations in base pay from one period to another
Not all home lenders are alike
How to choose the best lender…
Buyers think the big institution banks are the best way to go. This is a complete myth. Loan officers in banks are not all licensed mortgage brokers but are employees and salespeople for the bank. They have one size fits all approach with sometimes more restrictions. You have to fit into their narrow requirements. Knowledge and service can be spotty. Most importantly they don’t care about your costs or if you close on time.
Quicken loans have an efficient process and service, but their mortgage broker is clueless when it comes to Florida closing costs. On numerous occasions, they have misquoted and overestimated buyer fees. It is their job to know and to be accurate. If they do not understand the fees, how can they advise the buyer on how to best structure their loan? They simply are not knowledgeable about Florida rules.
Mortgage brokers, on the other hand, have more a financial mindset. They have to pass rigorous state exams to be licensed and don’t get paid if your loan does not close. They typically have access to hundreds of lending institutions. They can shop around for the best rate or lender that fits your unique loan situation.
Tips for Finding the Right Mortgage Person for home buying
- Stay off the internet to find a lender. You never know who is selling your confidential information.
- Find a lender that does a “Red Flag” Analysis. This eliminates shortcomings and increases the chances of the loan closing.
- Get a recommendation for a great mortgage lender from us or a trusted colleague.
- Avoid any lender that does not request a credit check and supporting loan documentation.
- Be leary of any lender that just corresponds online through email. A good lender is going to talk to you about your loan options and evaluate the best loan for you with your input.
- Get no more than two quotes from a reputable lender. There are no miracle rates and no free lunch. A good mortgage lender will quote about the same.
- Use a lender that knows how to solve problems and is accountable. Once a Loan officer gets your business, you are passed off to the processor to solve big issues. I find most do not know how to solve anything because they just process the loan. Loan Officers become missing in action and unavailable. At that point I realize, buyers are not getting the support and experience they should be, and it usually too late to change lenders. This is often the case with institutional banks. Ask us for the best mortgage brokers in the business. 407-539-1053.
- Find a mortgage broker that stands behind their fees and does not over change or raise their costs at the last minute.
It pays to have a competent team when buying your home. You want to hire the best mortgage lender, buyers agent, insurance agent, and inspector. We are dedicated Buyer Agents who work with Central Florida Home Buyer. We can recommend the top professional for your loan or whatever else you need. Contact Buyers Broker of Florida for a confidential chat about your needs. 407-539-1053