Most buyers today are asked by their real estate agent to present a pre-approval upon setting up the first appointment to see homes and sometimes this leaves buyers asking "Why?" That is if they are seeking a mortgage to finance their purchase.
First and foremost, please understand it is common practice (especially with me) for real estate agent to want to understand a buyer's buying power. It is not meant to upset a buyer. We are not even asking you to commit to a lender at that point. Having a loan agreement at an early home buying stage is not needed. But a pre-approval is.
A pre-approval does not tie a buyer to a lender or mortgage company. It just allows a buyer to confirm and express their buying power to their agent who needs to show listing agents and sellers they are about to approve a willing, able and ready buyer into their home.
It is advisable to shop around for a mortgage lender too. Going with the first one is not always best. And a buyer will not know this until they shop around. Lenders across the board have their own fees and can offer different rates. What one lender will offer a buyer may be different (better or worse) than what another lender will offer.
Another reason why it is advisable to get a pre-approval is to know your budget. Plan and simple. MANY times buyers think they know their budget but they do not. I always want to know what someone's max budget is along with the max in taxes that go with that amount. Not that we are going to do that but because we need to know this to avoid unnecessary heartache. Purchasing a home is very emotional. It is a journey.
For instance, a home asking $300,000 may have taxes in one neighborhood of about $6,000 (a year) and in another neighborhood it may be closer to $12,000 (a year). That is a huge difference and it can make the difference between qualifying to purchase the home and not qualifying.
Here are some things to think also when trying to get a pre-approval:
1. There’s nothing more frustrating than finding the perfect home only to discover the home is not in your budget. And as your real estate, it is my job to try to ensure this does not happen.
3. A pre-qualification letter is a guesstimate of what your budget is because no actual documentation is being requested. If a lender takes your word for it then you have a pre-qualification. And, for me, this means nothing. I will insist on a pre-approval. Here's an article about getting a pre-approval.
4. A pre-approval is required for all mortgages where full documentation and verification of income and assets are gathered. If you want to purchase a home and need a mortgage you can not get around this. Or at least you should not be able too. Occasionally I will discover some lenders issuing a pre-approval without doing their due diligence in gathering the needed documentation to issue a true pre-approval.
6. You need to be honest with your mortgage professional with all your finances and respond in a timely manner as well with their requests.
7. You need to be prepared to provide the following things (but list is not final): two years of w2, tax returns for the past two years, two years of pay stubs, bank statement (any any other statement you have from financial organizations/companies), employment info, list of assets and so forth.
I hope this blog post helps you to understand why a pre-approval is being requested by agents like me.
And remember once you have a pre-approval letter then the fun can begin...you are ready to house hunt.
J. Philip Real Estate is Westchester & Putnam's premier independent brokerage. Founded in 2005, the firm has grown from a single broker to a strong organization of well over 80 associates despite the housing downturn. The team's commitment to results and client advocacy, as well as our focus on technology and innovation, have positioned us as the "go to" brokerage for area buyers and sellers.