I am somewhat surprised to find myself writing about this topic, as I assumed that by now, we all understood the significance of obtaining pre-approval before making an offer on a house. Unfortunately, we have recently encountered several clients who missed out on their desired homes due to pre-approval issues. So, let’s discuss the importance of pre-approval and address some common misconceptions I am hearing.
The Misconception of Instant Pre-Approval:
- Advancements in technology have increased awareness about the need for pre-approval. However, it has also led to a misperception that obtaining pre-approval is as simple as entering your information into a loan system and receiving instant approval. This misconception can be detrimental to prospective homebuyers.
The Misconception that Technology Means Automatic:
- While it is true that individuals with straightforward personal finances can often receive pre-approval quickly (within approximately 20 minutes), such cases are exceptions rather than the rule. Many people face unique circumstances, such as recently acquiring a lump sum for a down payment, owning their own business, or having side income with corresponding write-offs that reduce their reported income. These individuals may need to prove eligibility for low or no down payment programs or provide explanations for certain items on their credit report. Sometimes, we even require an underwriter to review the application, which cannot be done on short notice.
Two Misconceptions About Credit Reports:
- Credit reports play a significant role in the pre-approval process. It is essential to understand that safeguarding your credit report excessively can hinder your ability to secure a mortgage. Maintaining good credit is surely crucial for obtaining a home loan. While pay stubs may suffice for purchasing a car, a thorough examination of your credit report is necessary for mortgage approval. Relying solely on Credit Karma or other consumer scores is not recommended, as they often differ from full mortgage credit reports. Obtaining a “comprehensive”HARD PULL” credit report will help the mortgage lender identify and address any potential issues before they become surprises during the mortgage process. This purchase is ultimately why you have a credit score. Don’t hide it!
The Misconception about Bidding Wars :
- 2023 has witnessed a resurgence in bidding wars for desirable properties. Houses are listed on a Thursday, and by noon on Saturday, sellers are requesting “highest and best” offers. Although receiving 20 offers is now less common, two, three, or five offers have become the norm. In light of this competitive environment, it is crucial not to wait until the last minute to determine your maximum loan amount.
The Misconception that Negotiations Are Just About Price:
- Having completed the pre-approval process with my team, you still may not have much room to negotiate the price of a property. However, you can still negotiate on other terms. For instance, offering to close the deal within 21 days, if it aligns with the seller’s preferences, could increase your chances of securing the property. With a comprehensive pre-approval, unexpected issues are less likely to arise later in the process. In 2023, you negotiate to get the property…THAT’S the win!
Bottom Line:
In the current interest rate market of 2023, pre-approvals are more critical than ever. Getting pre-approved will not only save your realtor, lender, and spouse a great deal of stress but also increase your chances of successfully purchasing your dream home. Remember to approach the pre-approval process diligently and thoroughly, ensuring all necessary documentation is provided. By doing so, you will be well-prepared to navigate the real estate market and secure your future home with confidence.
