Why the pre-approval process is so important for buying a home

Buying a home is an exciting experience for first-time buyers or seasoned investors. In today’s market with all the short sales, REO and bank owned properties, it is essential that the buyer attach a “pre-qualification” or “pre-approval” letter from their lender when submitting an offer to purchase a home.

Buying a home is a time consuming process and it is important that 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 house. If you are not familiar with any qualified lenders in the area of ​​interest, please consult your real estate professional. They will always be able to recommend 3 or 4 reliable and trustworthy mortgage companies that will gladly assist you.

In real estate sales, there are different types of letters acceptable to the seller. The prospective buyer should understand the difference between a “pre-qualification” letter, a “pre-approval” letter, or a “cash offer” verification.

A prequalification letter, also known as a “prequalification” letter, can be written by a lender after a 15-minute conversation with the buyer. The lender asks the buyer specific questions related to income, debt, credit, marital status, etc. In some cases, the lender will be able to run a credit report within this time period. If the buyer’s responses are acceptable to the lender, then they can draft a “pre-qualification” letter for the buyer to submit with their offer. Real estate agents may refer to this letter as an LSR, or Loan Status Report.

A pre-approval letter can be initiated when the lender has verified many of the buyer’s qualification requirements. Lender ran credit report to determine FICO score, verified buyers employment, verified income, debt, and assets.

If a buyer is paying “all cash” for a property, the submitted offer must be accompanied by verification of sufficient “cash” assets. A letter must be generated from the buyer’s stockbroker, accountant, CPA or bank officer stating that they have the “cash” funds to purchase the property.

An all-cash real estate transaction will often be more attractive to the seller. However, the only difference between “cash” and “pre-approval” is the financing contingency as set forth in a purchase contract. Although a financial contingency is important, it could be argued that a “pre-approved” buyer is just 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 financial status from the time of “pre-approval” until the closing of the escrow.

The next time a real estate agent asks if you’ve been “pre-approved,” they’re looking for the best for you. This “pre-approval” will allow your agent to negotiate the best price, terms, and conditions on your behalf when you find your dream home.