Do I Need a Pre-Approval From a Lender?
Question:
Marsha my real estate agent insists I speak with a lender and get “pre-approved” before he’ll show me any homes. I have the down payment and I’m ready to buy. Why bother with a lender until after I find the house I want to purchase?
Answer:
Congratulations on choosing an intelligent and conscientious agent. He is correct in saying your first step in the home purchase process is talking with a lender and not going to open houses. How else will you know how much house you can afford? He is also correct in urging you to obtain a total pre-approval and not simply a pre-qualification letter. The pre-qualification states you’ve spoken with a lender, told him you have good credit and you can also fog a mirror. Nothing has been verified.
I spoke with Michele Herrera of RPM Mortgage. She is a Santa Barbara local who has been in the lending business for over 25 years. We talked about the importance of connecting with a lender at least six months or more before you start your serious house search. Michele emphasized that obtaining a pre-approval letter costs you absolutely nothing. However, failing to speak with a lender before you start your home search will cost you plenty.
Michele added that obtaining a pre-approval letter proves the lender has run your credit, seen two months’ worth of pay stubs and all asset and bank statements. They’ve also verified your income and debt, looked at tax returns and certified your down payment. You’ll learn what your mortgage limit is. Michele will tell you what your monthly payment will be and most importantly what price range you can afford. Why look at a $900,000 home if all you can afford to purchase is a $600,000 home?
The pre-approval process forewarns you about potential issues and mistakes on your credit report. Has your identity been stolen, did your ex-spouse use your credit cards for a vacation? Good to know these things before you find your dream home and lose it because your credit report suddenly appears with negative information.
A loan commitment is made when the lender is certain they want to work with you. After the pre-approval the only missing piece is finding the right home!
Many listing agents, myself included, won’t consider an offer without a legitimate pre-approval letter. I always call the lender and verify the information. Who do you think the seller will take more seriously the buyer who makes an offer never having spoken to a lender? Or my buyer with the approved loan commitment and a good down payment?
The pre-approval letter assures the seller you are a serious buyer. This allows you to move quickly when your perfect home becomes available. So, yes, get that pre-approval and start moving on your home purchase.