Mortgage pre approval
Don't get pre qualified for a loan, get mortgage pre approval before you start house hunting.
Do you want to buy the best house you can for the least amount of money. Make sure you are in the strongest negotiating position. Price is only one of the bargaining chips in the negotiation and not always the most important.
Terms, such as purchase price or proposed closing date are important ot a seller. But they will also consider what kind of loan you are applying for (indicated by the proposed loan to value ratio in the contract) and whether you are submitting an offer accompanied by loan pre approval. These 2 components will help put you in a stronger position when the seller is considering your offer.
Buyers have gotten pre qualified in the past but all that means is that you spent a few minutes on the phone with a lender who asks a few questions and based on the answers, pronounces you pre qualified, even issuing you a certificate to show to the seller or your real estate agent. However, none of the information has been verified and that makes pre qualification basically worthless. Unknown problems can surface including recorded judgements, past due child support payments, inaccuracies on the credit report, etc.
Pre approval means that all the information has been checked and verified. You are actually approved for the loan and the only contingency is satisfactory appraisal of the property. The process can take anywhere from a few hours to a few weeks depending on situation. A pre approval letter will demonstrate that you are a "strong" buyer when the seller reviews your offer.
Another good reason for pre approval is quite simply, let's say you are interested in a house that costs $279,000 and the lender says you are a really good person and we'll be happy to give you a loan but only for $265,000. If you fall in love with a house that you might not be able to afford and can't negotiate a deal at $265,000, everything else you look at might not be as appealing and then where are you.
As a good real estate agent, I get a lot of inquiries from many people and I'm always happy to provide as much information as possible. I draw the line on showing property, however, to only clients who have mortgage pre approval letters. Whether you are planning on purchasing a home for $200,000 or $2 million, it is simply a question I ask of anyone who wants to see property.
I'll always invest a few hours to show anyone a tour of the area who is considering moving to the Charleston area. It's the most fun in my job and I love to "show off" and "tout" the many benefits of living here. But when someone wants to purchase Charleston real estate, I require mortgage pre approval. I met a very nice couple who I did exactly that with, they were traveling around the Southeast looking for the best place to retire. I gave them a nice tour and told them if they found anyplace better, please let me know. A few weeks later they got in touch and said, "we loved Charleston and would like to look seriously at property". Arrangements were made for a house hunting trip and I said that I would need a pre approval letter. They indicated they were going to pay cash. OK. Then, please provide proof of funds. OK. And when they met me first thing in the morning, they had a financial file 2" thick with more than enough proof of their financial wherewithal. They proved themselves to be serious buyers who I was glad to spend time with helping them to find a home.
Today's mortgage problems in the subprime mortgage market and a general tightening of all underwriting by all lenders means that buyers who thought they could get a loan may not be able to obtain one today or may not be able to get a loan for the amount they previously thought they could. The seller of the home you are considering is very interested in your credit worthiness before taking his/her home off the market awaiting mortgage preapproval. The agent you are working with spends time and money showing you around the area and doesn't get paid unless the house closes. With $2.50 per gallon gas and lunches paid for by the agent, it is only fair that you prove that you are serious about and able to buy.
Other agents might take you around and show you houses without mortgage pre approvals but they are likely either brand new or not so good and have nothing else to do. In a previous post, I talked about how many new agents have been licensed in the last couple of years during the real estate boom. And in another post I talked about finding a good agent first, then find the house. While it might not make sense at first because why would you need an agent if you can't find a house, don't worry, there are lots of nice houses but just not as many great agents.
If you're serious about buying a home, get started by getting mortgage pre approval. Ask me for the names of some excellent lenders if you don't know where to begin.