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Why Get Pre-Approved?


The pre-approval process is where a loan officer looks at your complete financial picture, income, debts, credit score, taxes and all your obligations and run your application through an automated underwriting system to determine how much could your afford. The process does not take a long time once you provide the loan officer the documentation he or she requires.  It is also free of charge.  When talking with your loan officer, it is important that you let him or her if you have a monthly payment amount in mind. 

The loan officer will tell you up to how much they are willing to lend you.  However you do not have to buy a property up to that amount.  By the same token, the loan officer is not tell you that you have to purchase at that amount, just how much they could lend you if you choose a higher priced property.  You should have determined what is your budget and how much you can you afford. This is the amount you should provide the loan officer.  Keep in mind, depending on your local market, that amount could be enough to reach your goals or might not be enough to purchase the type of property you want or in the areas you desire. 

A pre-approval letter has more weight than a pre-qualification letter.  A pre-qualification is a general guess of your purchasing power and should be avoided. In this sellers market where properties are sold in days with multiple offers, sellers will NOT even consider your offer without a pre-approval. The pre-approval letter shows the sellers you are a serious buyer. When the seller accepts an offer from a buyer, that property is remove from the "Active" inventory and placed on the "Under Contract" or "Pending" inventory and will not be shown to other potential and pre-approved buyers. Because of this, sellers want, and frankly need, to know that a loan officer have looked at your finances and taxes and that if they accept your offer, you would be able to close. While a pre-approval is not a final approval, it is the closest thing to it. It tells the seller that provided that nothing changes in your financial picture and a positive appraisal, you would be able to close without problems. It does not help you or the sellers to find out the property is out of your financial reach after you are under contract. The opposite is also true. 

It is not uncommon for buyers to find out they can comfortably afford more than they thought once they go through the pre-approval process.  It is also sad when a buyer gets under contract on a property and then realized they could have purchased that other house they loved but did not even try because they assumed it was out of their reach.

The pre-approval process should be your first step in your purchasing process. If you do not have a relationship with a loan offer yet or would like to compare, go to the "Partners" section of my website for a list of mortgage professionals I recommend. 

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