Why is It Important to Get a Genuine Pre-Approval?
In today’s market it is imperative you get pre-approved BEFORE submitting an offer for a property. The contract says you have five days to submit a pre-approval letter to the seller after the contract is accepted. Buyers who submit their pre-approval letter with their offer are viewed as a cash buyer to any seller. If the seller is a bank, called an REO (real estate owned by the bank) or foreclosure, they will throw your offer in the garbage if you are not pre-approved. They take it one step further and say they want a pre-approval from a direct lender (which includes someone like myself), not a mortgage broker.
What Could Happen If You Don’t Get a Pre-Approval Before Writing an Offer?
Let’s suppose you submit an offer on a property listed at $100,000 that gets multiple offers (which is happening more and more in the last 45 days) without a pre-approval letter. You submit the highest priced offer at $110,000. The next best offer is a full price offer for $100,000, but this buyer has been pre-approved and is ready to go. Chances are, your offer will be rejected and the seller will move forward with someone who has demonstrated they are ready, willing and able to purchase the property. Most sellers are willing to give up the extra $10,000 for one less obstacle to overcome.
Let’s look at a different example. Suppose you used one of those fancy online mortgage calculators to determine what you think you can afford. Say for this example that number is $500,000. You go out and start looking for property and find one for $499,999. Excited, you run back to your real estate agent’s office and write a contract. While waiting to hear back, you start planning where you are going to put your furniture and what color you are going to paint it. You are even more excited when the contract is accepted and you have five days to get a pre-approval. Several things can happen that could prevent you from being able to obtain this pre-approval in five days.
- There may be an error on your credit report that you were unaware of that needs to be cleared up. Maybe identity theft, maybe a delinquent account you forgot all about or maybe simply an error. Usually these problems take longer than 5 days to clear up and you would lose the house.
- You find the personal loan payment that you didn’t include on the online calculator really is an important figure and you really can’t afford as much as they said. You will lose the house if you couldn’t come up with a substantially higher down payment.
- The interest rate used on was much lower than today’s interest rates and it turns out you can’t afford the monthly payment after all with the higher interest rate.
- The online calculator neglected to include taxes and insurance which raised your monthly payment to a number you are not comfortable paying.
You get the point. Getting pre-approved before you start seriously looking for homes is always a better idea. With a pre-approval you know you won’t be wasting your time looking for homes that you cannot afford and, once you do find that perfect house, you will know you can afford it.
The Choice is Yours
It is well within the rights of the real estate contract to wait until 5 days after your contract is accepted. But, it is also well within the sellers right to take another offer, even if it is for a reduced price than your offer.
How Can You Get a Genuine Pre-Approval?
It’s simple with our no hassle plan. Call us at (650) 520-0915, email us or try our secure online mortgage application for a free, no obligation consultation. We’ll sit down with you, answer all of your questions and put together all the information you need and get you on your way to a geniune pre-approval today.
Other Posts You May Enjoy
- What Is and What Is NOT a Pre-Approval?
- First Time Home Buyer Class: How to Buy Foreclosures
- Can I Use Tax Credit Money for My Down Payment?
- What Should I Bring to My First Appointment with My Mortgage Advisor?
- What Mortgage Can I Afford?
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Chris Williamson is a Mortgage Advisor with Mortgage California specializing in San Mateo Mortgage.
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