Pre-Approval Home Loan
helps with Negotiating
You have your dream home in mind, perhaps it has a swimming pool, or large yard with a fence, beautiful trim and decorations, marble counter tops, bamboo floors, Jacuzzi tub, entertainment room and a home alarm system. After searching the internet you find the home you have been looking for, your heart races a bit and your get your real estate agent to make an offer. As you excitedly wait for the deal to close you get call form your mortgage officer explaining your loan was denied.
All of the anticipation of your new home is crushed! What went wrong and now what do you do? One mistake many people make is not having there financials figured out before they put in a n offer.
These days lenders, due to new government regulations, are very particular with what a person can afford. Getting a pre-approval for financing is a one step to ensuring you are looking at a home in the right price range. A pre-approval different than a pre-qualification (see explanation below,) it is a more depth look at your finances it will give you an idea of what a lender is willing to loan. One of the main areas lenders look at is your debt to income ratio. Understanding ones financial situation and possibly making improvements really is a must for not only getting a loan but also planning for the future for ones financial success. Having a pre-approval or pre-qualification letter can give one an advantage in negotiations with a seller. To a seller, if a buyer has a pre-approval for a loan it means there is a good chance the deal will go through. The seller will be thinking if I chose this particular buyer than I will get my house sold and won’t have to worry about going through the negotiation procedure again, they can get my house sold and get on with my life.
There are two main types of “pre” letters from a lender, the pre-qualification and the pre-approval.
The Pre-Qualification letter is a more simple procedure and informal. It is not an approval for a loan and there are no guarantees that you can get a loan. The lending company will provide an amount the borrower can afford based on some basic information of their financial situation. The lender will not take the time to verify the information is correct and no credit check will be initiated. There is usually no charge to a borrower for this service and the process can be done easily over the phone or the web.
The pre-approval letters are provided by a lender which states the borrower is approved for a loan for a specific amount. The borrowers financial information has been checked: credit history, employment status, financial strengths and weaknesses etc. A buyer who has a pre-approval letter will help put at ease a a seller during the negotiation process, since they know the buyer can afford to complete the transaction.