"The Pre-Approval" Common Mistakes
"The Pre-Approval"
What is a pre-approval and why is it so important? Well, let's first start by defining the pre-approval. A pre-approval is nothing more than a good faith letter by your chosen lender that states you are pre-qualified to buy a "house" at a specific amount providing you give ALL requested info while being completely honest with your income, debt, situation, etc. Another missing piece that is oftentimes not relayed to the buyer is the importance of no changes in your income, debt, and situation from the time you receive your pre-approval letter to closing. Also, a very important key ingredient...Are you providing your lender with allinformation? I.E. Are you planning to buy a home out of state however you are using your current job to verify income? You need to disclose as much as possible to your lender up front. In my career I have witnessed unfortunate outcomes for buyers that could have really been prevented should they have correctly covered all their basis up front. Below I'm going to go over some common errors made when getting pre-approved. When reading through these below issues please consider there are pre-paid, non-refundable, expenses that you will incur throughout the home purchase process. You could end up costing yourself thousands with the below mistakes. Prepaid expenses could cost you many stressful hours & roughly $1,250 - just to end up extremely disappointed and back at square one. Please read through the problems below where I'll cover these expenses and the importance of considering an experienced Realtor and Lender. I also want you to consider talking with me before contacting a lender. Each bank does have different loan products and their specialties may differ from one to another. You may be better served in dealing with a bank that specializes in a specific property class or loan type.
Problem 1: "The Self Pre-Approval"
This is probably the #1 most common pitfall I see from potential buyers - and rightfully so! These days you can't possibly search a real estate site without seeing some sort of mortgage calculator allowing you to see what purchase price you can "afford" monthly. I certainly understand it may be misleading when these calculators tell you can afford a $200,000 house based on what kind of monthly payment you can dish out. Please understand that just because you know you can afford $1,200 a month doesn't mean the banks going to hand over $200,000 just because you explain to them you have been paying rent of $1,200 a month for the last 2 years. I'm not here to go over lending guidelines because I'm not a lender and don't even pretend to keep up with the guidelines a lender has to keep up with. However, I've seen folks waste many hours and money shopping for a house only to be seriously let down when they are ready to make an offer and are unable to get pre-approved for the house they have pre-approved themselves for.
Problem 2: "My Pre-Approval Qualifies Me For ANY property Up To My Approved Amount"
So like many, you didn't miss the first step and have applied with a local lender to obtain your pre-approval letter. Great!!! You are well on your way to becoming a new homeowner. But, please work with a qualified Realtor to make sure you are searching for a property that you are actually qualified to purchase. There are many factors to consider before you start your home search. Just like the self pre-approval, this missed step can cost you time & money just to be let down when you find out the specific property you have found does not qualify for the terms and conditions of your pre-approval. Things like property type, insurance, property condition, roof age, and location can all play a major part in whether or not you are going to be able to make it to the final closing stage without issues. Again, please Contact Me so we can go over your options in making sure you are not wasting valuable time searching for the wrong home!
Problem 3: "Approved Now, Denied Later"
Now this one really wows me! I have seen deals fall apart just a few days prior to closing because a buyer decided to withhold small details from their lender. Folks commonly think just because they have received a pre-approval from the bank they are ready to buy a home and never look back. Before I get into the amount of time & money you could potentially cost yourself when fudging your numbers, let's first go over what a "lender" really is....
A GOOD & KNOWLEDGEABLE Lender is a very important piece to the puzzle no doubt! But, please understand that a lender is not the one that will handing over the money to purchase your next home. A lender's duty is to crunch your numbers, situation, & terms to "pre" qualify you for the bank's terms for lending money. The actual approval process doesn't even begin until you have agreed and signed a purchase contract between you (the buyer) and the seller of the house you have chosen. Once your lender receives a contract they will begin to obtain the necessary paperwork for processing and most importantly, underwriting. Underwriters..... I'm sure we have all heard that word a time or two. Underwriters are the backbone of your final loan approval. For those who have not yet been through the purchase process. The underwriters will and can find every detail you thought you could withhold from your lender in the beginning stages. These underwriters are going to ask you for absolutely everything and in many cases you are going to be extremely stressed out from the process early on. Again, please work with an experienced teamwho can help you through these stressful times! They can relieve a lot of the unnecessary worry from you and allow you to stay focused on only a few things instead of ALL of the important steps and complications that could arise.
Problem 4: "The One They Lost"
Being a higher volume Realtor, I've seen this one far too many times. Seeing my clients miss out on a good deal that is absolutely perfect for them, really upsets me. I don't mean it makes me mad...I mean it pains me to see the emotional struggle they go through when this happens. Until a buyer goes through this they don't see the importance of having that pre-approval before they start home searching. Had they taken 15 mins up front to fill out a simple loan application this wouldn't have happened. Some buyers never forget about "the one they lost"! I'll never forget about the time I asked a buyer if they were pre-approved and they replied "yeah we're good, we've already talked to our bank". I worked with these clients for a couple months so they could purchase their dream home. Literally, this home was one they had wanted for many years. They we're just waiting on this particular home to hit the market and it was theirs. Well, they received word through a source that the seller was going to be selling the home soon. Again, they told me "they were good"! So, I reached out to the seller for them and sure enough they were ready to list the home. In just a few days we had the home listed and ready for an offer. My buyers were so excited, and of course I started typing up the purchase contract for them. In going over the financial contingency section of the contract I asked them to send me over their pre-approval, as it states in the purchase contract you must attach provide proof of funds, lender info, loan type, etc. Here's where they dropped the bomb....."Well, we don't have a letter they just said we were good". At this time I found out they weren't pre-approved at all. They spoke with a bank about their numbers and they said they should be okay. These buyers were already in a bad position as the house had already received a lot of market attention in just a few short hours. Well, long story short, these buyers found out after a loan application it was going to be a few weeks before the bank could issue them a pre-approval as there were some things they needed to get cleared up. My buyers did end up getting approved, but unfortunately it was couple weeks too late. The home already had multiple offers and the seller had accepted a final highest and best offer.
Folks the moral of this story is to please get a pre-approval, it's way too easy not to! You may think you are different then these buyers and not yet quite ready to purchase a home. Well, please absorb one question for me. Are you like MANY OTHERS who are looking for a deal on the perfect home? Of course you are! But, so is everyone else who is actively home shopping. And please keep in mind, some of these other folks have already been burned once before and lost out on what they found to be the perfect home. If a good deal hits the market it WILL NOT last long in our area. Like you, people want to live here! The 24-48 hours it takes to obtain a pre-approval may end up causing you to miss out of the perfect one!!
So, here's my obligation to you. If you follow my plan and allow my "Advanced Home Search Service" to work for you - Together we will make sure you don't miss out on that perfect home! Let's make sure you aren't left in the same position as my buyer clients above. Hey, a pre-approval, help of a REALTOR (see below), and my "Advanced Home Search Service" is completely free to buyers. Why on earth would you not take advantage of it?!
Problem 5: "The Closing Expenses"
Now this is another one that can cause a huge problem when trying to successfully close your loan. Imagine making it through all the above mentioned steps with your hard work only to find out 48 hours before closing you don't have the needed funds to close. Many buyers are under the impression closing cost are wrapped into the loan amount or included in the amount you originally planned to put down. Folks please understand your closing cost could potentially cost you more than your planned down payment amount! You really need to contact an Experienced Realtor or Lender to go over these expenses up front and make sure you have the ability to afford not only the purchase price, but also closing expenses!
So what could these hiccups end up costing you? Here's a short list of some of the expenses you could cost yourself should the offer & purchase process not be held properly. Examples of prepaid expenses are as follows: Appraisal = $500, Inspection = $400, CL-100 Letter = $100), Title Search = $250
Now that we have covered the importance of your pre-approval, let's get you started in the right direction. Click Here to start the application process!
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This advisement has been presented by Drew Dellinger of Garden City Realty. For more info on myself ,team, accolades, & to see my past client reviews please visit the links provided below.