The Power of the Preapproval

The Power of a Preapproval

Quick question: how often do you make a grocery list of items you need, pack everything (or everyone) in the car to run to the store and never check to see how much you have to spend on groceries? Never check your bank account if using a debit card, never check your wallet for cash, never even so much as look in the car for loose change….my guess, probably not very often. So why do the same for the largest purchase of your life?

 How people buy homes has evolved over the years, and especially since the housing bubble burst. Gone are the days of declared income where banks take your word for how much you make and how much debt you have. These days, it all has to be documented and lenders have very defined terms of what you have to meet in order for them to lend to you. While I am not a lender, underwriter, or originator, I do know they look at a number of factors including your credit score, your debt, your income, your job history, how much you have for a down payment, and a few other variables. These days, jumping online to browse through homes to schedule viewings with your preferred Realtor is NOT the first step in the home buying process. The first step to buying a home is to find out how much you can afford and how much you will be loaned; both accomplished by simply obtaining a PreApproval (NOT a Prequalification).

Here are a few reasons why, if you plan to use financing, to get a preapproval as the FIRST step in your buying process:

1)      You will know without a doubt (provided you don’t squander you money and rack up huge credit card debt between preapproval and closing) how much you can afford and how much you will be loaned.

2)      It makes budgeting for a home payment quick and easy once you have a loan amount and interest rate. Just add in taxes and approximate insurance and there you have it.

3)      Experienced real estate professionals will not work with you if you do not have a preapproval. Sounds harsh but so is wasting your time and theirs because you “know for sure” you can get a loan but turns out, your credit score is 35 points off the minimum requirement to get financing.

4)      You have a much more realistic idea of what you can get for your money if you know a ceiling or cap of your loan amount. If you are looking at homes in the $150,000 range but can only get financing for $110,000, there is a pretty drastic difference in the type of home in those two price ranges for the Pensacola market.

5)      It opens the door for more opportunities if you are only considering buying to get a preapproval. If you don’t have 3.5% to put down on an FHA loan, but turns out you are looking in an area that falls within the USDA Rural housing area, you could get 100% financing.

6)      Nearly all, (and all the transactions I have been involved with) REQUIRE a preapproval to be submitted with an offer package. If you are looking at a great home and so are 3 other people, having that preapproval speeds up the offer process that much more so you don’t potentially lose the house by wasting time getting everything together.

7)      If, after trying to get your preapproval, you are unable to buy today for whatever reason, you have a person in the business to guide you on the path to restoring your financial situation to a point that they will lend to you. It’s like credit counseling without the charge! Yes, they do make money eventually if you get your loan through them

The preapproval process has become exceptionally streamlined and quick over the years. I have my list of preferred lenders who can take your information over the phone and have a preapproval issued within the hour.  Knowing where you stand helps determine where you start, which ultimately leads to where you want to go.

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