Take Advantage of Loan Pre-Qualification

Why all the fuss about pre-qualification or pre-approval?
By Mike Coble, President and Owner of Premier Residential Mortgage

Why is my real estate agent so adamant about me contacting the mortgage company? I really want to just go out and look at houses…once I find something I like; I will call the mortgage company…

In the Austin (and all of Texas for that matter) real estate market, it is common for borrower’s to be pre-qualified or pre-approved before ever starting to shop for a home. It is also very common for the real estate agent to recommend one or more mortgage professionals with whom they work regularly and with whom they trust to deliver what they promise (note that it is illegal and a violation of the Real Estate Settlement Procedures Act for a lender to pay a fee to any real estate agent for a referral, so don’t let the agents recommendation be misconstrued in this manner).

Most listing agents will require a letter of pre-approval or pre-qualification before ever presenting a contract to their seller. The reason? They do not want their seller to spend time negotiating a contract or take their home off of the market without being certain that the buyer can qualify for the loan. Often times, sellers will receive contracts from two buyers simultaneously (known as a “multiple offer” situation), and the seller’s will choose to negotiate the contract with the pre-qualification letter attached.

Pre-qualification typically takes 5 to 10 minutes and can be done over the telephone. The mortgage professional will require basic information about the buyers work history, monthly income, address history for the past 2 years, bank account balance information, preferred down payment / cash at closing, etc. With the above information, the lender will order and review a credit report, and generate a pre-qualification letter stating that the borrower has been pre-qualified to purchase a home at a pre-determined price based on information provided by the borrower verbally.

Pre-approval typically takes about 15 minutes and can be done over the telephone. The mortgage professional will perform the same tasks as the pre-qualification above, but will also have the borrower fax or e-mail income and asset information. The income documents are typically the most recent years W-2 forms and the most recent paycheck stub. The asset information is generally the most recent two months bank statements. With the income and asset information validated, the lender can access automated underwriting systems and issue the “pre-approval” letter that is more concrete.

In closing, do yourself a favor and get pre-qualified before house shopping. You will be eternally grateful that you invested 15 minutes to get the financing process out of the way up front so that you can focus on finding your dream home. The seller will undoubtedly be more inclined to entertain your offer knowing that you have taken the initiative to show them that you are qualified.

The Advantages

√ Know how much house you can afford.
√ Know how much cash you will need for the down payment.
√ Simplifies pre-approval.