Let’s Respond to the Market, Not React to it.
Over the years, I have looked at thousands of credit files and provided sound advice throughout the loan process. I’m writing this because I’m tired of watching our real estate industry reacting to the market; watching clients walk away from the negotiation of a real estate transaction and losing to multiple offers.
Over the years I have noticed that people fall in love with the Idea of living in a new home or upgrading the home they currently live in. They can visualize their families having family meals around their new kitchen that sprawls into their new open concept living areas and their children playing with their friends in the back yard. I get it, it’s the American dream, and it sells. What we don’t fall in love with is taking a hard look at our credit, finding out really how we look on paper; the good, the bad and the ugly, not to mention going through the approval process that has gotten a little trickier over the past seven to ten years. I have watched clients who have fallen into denial or fallen victim to putting the cart before the horse.
In the last twenty-four months we have been in a market where most homes are in multiple offer situations and all but one offer loses the contract. People are missing their dream homes, and settling for something that works but isn’t exactly what they wanted. Here is the way it happens, a realtor calls us, typically at the last moment late in the week or evening and says “I got to get a pre-qual on a buyer I’m working with and we need to make an offer tonight”. We call the client and they are in a hurry and either don’t give us all the facts or just enough information to get them pre-qualified, without giving much consideration to their short and long term financial needs, we issue the pre-qual letter, the agent makes the offer and it looks just like all the rest of the offers that the listing agent is sorting through and they just take the offer that is the highest and has the most down payment or the cash offer. All but one person is out looking for the next home that will again have multiple offers. We, as an industry (Realtor and Mortgage people alike) have been Reacting to the Market instead of Responding to the Market.
I think it is prudent to explain the difference between the terms “prequalification” and “preapproval” before we go on. A prequalification is an estimate of a consumer’s potential borrowing capacity based upon unverified information provided by the consumer and a credit report. It is neither a commitment for a loan nor for any particular loan terms. A prequalification is not a loan approval and the transaction is still subject to underwriting review for a determination of whether the proposed transaction can be approved by the lender. A preapproval, by contrast, is a lender’s loan commitment, subject to certain specified conditions.
I believe there is a better way. The idea is to make your offer Stand Out among all the rest. Most offers say that a mortgage person has pulled credit, either has or has not seen proof of your income and assets and to the best of their ability believe you meet all of the requirements of the FANNIE MAE Guidelines and Sellers’ Guide of which there are hundreds of pages.
What if you were a seller and your agent presented an offer with a lender’s preapproval, indicating that the purchaser’s credit file has been completely underwritten and is only subject to an Executed Contract, Title Work and Appraisal? If the other bidders on the property have only a prequalification or not even that, an offer with a preapproval is going to stand-out head and shoulders above the others. Also, with a preapproval, we can typically close your loan in in less than 30 days. WOW!
What does that mean?
Well, it means that the approval is good for 30 days, you have gone to trouble to let the mortgage company verify that you have completely qualified for a home-purchase a home and that the only things left to do are execute a contract and order an appraisal (and if you are strong enough with credit and down payment, an appraisal may not even be a condition on the approval). You would not have a Financing Addendum to deal with, it is a much stronger offer than everything except cash.
How does it work? Simple…
• Start the mortgage process early and let us disclose a loan package to you based on your short & long term financial goals before you make an offer on a home;
• Provide us with the complete needs list we request from you after you make application with us; and
• Be proactive in responding to our information requests during the process.
Yes, this will take extra time and effort from you upfront, but if we can obtain underwriting approval for your loan application prior to your making an offer on a home, we can issue a preapproval letter with only a few conditions, typically, an acceptable purchase contract/property and an appraisal.
This process seems backwards to you, but the fact of the matter is, it’s the correct way to go through the process. There is power in knowing exactly what you can and can’t do and what all of your options are.
More importantly, it gives your agent a “leg up” on the competition.
Let us help you in this process and let’s get you into your dream home!