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What a pre-approval letter is & why you need it to buy a house

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Are you interested in purchasing a home or real estate on Lake Conroe, Montgomery County, or anywhere in SouthEast Texas? Do you know what the first step is, in this process? The excitement and emotions surrounding the home buying process can be overwhelming to say the least. Just searching for a house while still trying to manage day to day living is stressful enough.

One thing that’s certain is that serious home shopping begins with obtaining a pre-approval letter from the mortgage lender of your choice. Pre-qual, pre-approval, pre-this, pre-that sounds like loads of paperwork.

What you need to know before putting in an offer

What’s the difference between pre-qual and pre-approval?

1. Pre-qual is an unofficial estimate of what you can afford
2. Calculations are based on filling out minimal info online or by calling a local lender
3. You only need to provide basic financial information like your income, credit history, etc
4. The broker or lender then does a quick calculation of your debt to income ratio. This is how much debt you carry compared to your monthly income.
5. They usually don’t pull credit report.
6. The Pros- Quick, fairly simple, less paperwork, & usually free.
7. The Pros - There are plenty of FREE pre-qual calculators online. Just Google it.  I have even seen mortgage phone aps that can give you an estimate of your general price range.
8. Cons - Designed to only tell you what you should be able to borrow
9. Cons - Not an exact analysis of what you can really afford
10. Cons - Only use for a general idea of your purchasing power at the beginning of your search on the internet.
11. Cons- In real estate “hot spots” where homes sell fast, sellers may not even consider offers from buyers without pre-approval letters.
12. Cons- Some agents won’t show houses without pre-approval letters

Why it’s better to get a pre-approval letter?

Own A Piece of the Dream ~ American Flag Lake Conroe Texas May 2008

1. Pre-approval involves verification of your ability to purchase
2. You must sit down with the lender of your choice and provide documentation to confirm employment, tax returns, bank statements, income, & the amount you have set aside for down payment.
3. Since there are many factors that go into calculating your monthly mortgage payment, you may not be qualified to borrow as much as you think.
4. Pros- You will know exactly how much money you are qualified to borrow
5. Pros - You will have more leverage when negotiating with sellers because they know you can actually obtain financing to close the transaction.
6. Pros- In depth analysis of your true financial position
7. Pros- Verified & certified proof of your ability to pay
8. Pros- You will know the interest rate you will pay for borrowing
9. Pros- Your Realtor is able to work harder and more efficiently on your behalf, with an accurate picture of what you can truly afford. No time wasting for anyone!
10. Cons- Not binding on the lender
11. Cons- Subject to an appraisal of the home you want to buy
12. Cons- Time sensitive – If your financial situation changes in the course of your home search, the lender will have to review & recalculate everything.
13. Cons- More in depth & there is usually a fee for pulling your credit report

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This entry was posted on Thursday, June 2nd, 2011 at 5:57 pm and is filed under Finance and Mortgage Corner, Home Buying 101, Home Selling FYI, June 2011. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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