You may have heard two things about the real estate market lately. First, it’s super competitive and that many properties have multiple buyers bidding on them. Second, you can get pre approved on your phone in under ten minutes. The impact of both of these is being felt in the market and they are making the market potentially frustrating for lots of folks.
First let’s discuss the real estate market. It’s a fact that some homes have over a dozen offers on them. So the question is, aside from being at or near the highest price offer, what will get the sellers to choose your offer as the one to go into contract with? The answer is the confidence that you will be able to actually close. Realtors, and their sellers want certainty. They don’t want to accept the highest offer, have it fall through in 25 days and have to restart the process of marketing the home.
This confidence comes in one of two ways. The first one is the amount of money you put down. It speaks to your confidence as a buyer in the transaction. However, it can be a bit of a false flag because if you were to put $100K down on a $500K house, you really don’t need to bring that money until closing. If you don’t get your mortgage approved for the other $400K, then there is no closing! It’s a thing people can see so they use it to make decisions but if you are not putting 100% down (paying cash) for the house, it’s really no guarantee of anything.
The second way is far more relevant. It is the strength and depth of your pre approval letter from your lender. This, however, is impossible to do CORRECTLY in seven minutes on your phone. Technology companies will sell you that this is easy, it is not. In the broadest strokes a mortgage, and thus a preapproval, are built, like a stool on three legs: your down payment, your credit history and your debt to income ratio (DTI). In theory, it can all be calculated if you answer a few simple questions on your phone. But really that is just a theory.
In reality many details go into the calculation of the strength of each of your individual legs of the mortgage. Is your income generated by your own business? If so, what do you write off? Do you have a salary and a bonus every year? How much, if any, of the bonus can we use? What about overtime? How are you getting the cash for the down payment, have you saved it up or recently got some funds from family? What about your student loan payments that are deferred for a while. You are paying zero but the industry has to count a monthly payment against your income regardless. There are lending rules for each of these details that are impossible to dig through in a few minutes.
So a full pre approval will require some effort on your part. Effort in telling us the details of your employment, income, savings and debts. However, once that effort is completed, if we issue you a pre approval letter, we are certain that unless there is a problem with the property you select, you will close! We also can professionally communicate that certainty to the sellers and help them understand why even if you have a lower down payment than another offer that we can get you, and their sellers, to the closing!
A strong, full pre approval is the key to winning the property you want in this market. You need an experienced, skilled mortgage lender, not a smartphone.
