Don’t get “Pre-Qualified,” get “Pre-Approved!”
Do you want to get the best house you can for the least amount of money? Do you want to truly understand market value for the exact type of home you are purchasing?
Then make sure you are in the strongest negotiating position possible. Price is only 1 bargaining chip in negotiation, and it is not necessarily the most important one. I know you’re thinking, yeah right, like the seller would choose an offer that isn’t the highest price! Well, it’s true, folks. Sometimes, other terms such as the strength of the buyer, the # of contingencies or the length of the escrow are more important to the seller.
In years past, buyers got “pre-qualified” by the a lender. This is when you spend a few minutes on the phone with a lender (your bank, for example) or on the Internet, say on Lending Tree, answering some basic questions. Based on your answers, the lender or online site pronounces you “pre-qualified” and issues you a certificate to show your Realtor and the seller.
This “pre-qualification” is not only no longer enough, it is downright meaningless. The sellers and their Realtors are aware that such certificates are WORTHLESS, and here’s why:
1. Nothing has been verified! Whose to say you didn’t just invent your income, credit history, marital status….? Unknown problems can surface during escrow that affect the approval of your loan, and thus the sale of the seller’s property. These problems can include: recorded judgments, child support payments due, credit report glitches (both accurate AND inaccurate), down payment funds that have not “seasoned,” i.e. been in your account long enough, etc, etc.
2. Today’s economy is suffering from the sub-prime meltdown and it ain’t over yet, kids! You may think that this doesn’t affect you because you have good credit but you may be wrong. Lenders have seriously tightened their belts! Their requirements are stricter, making it tougher for first-time buyers in expensive markets, like San Francisco, to qualify for loans.
In today’s San Francisco real estate market, whether you are buying a loft in the Mission or SOMA or a Bernal Heights single family home, the ONLY way to make a strong offer and get the home you want is to get “pre-approved,” unless you are paying ALL CASH, in which case, you’ll need to verify this too!!
You are “pre-approved” AFTER all of your information (income statements, credit report, bank statements, tax records, etc) has been submitted, checked, and verified by the mortgage broker and/or lender. You are actually APPROVED for the loan and the only loose end is the appraisal on the particular loft, condo, home, or TIC you wish to purchase.
“Pre-approval” should come BEFORE you find the perfect home. It should take place before you even go SHOPPING for the perfect home. The process can take anywhere from a couple of days to a few weeks, depending on your situation.
It’s an EXTREMELY POWERFUL WEAPON that I insist all of my clients have in their negotiating arsenal.
ADDED BENEFIT: Getting “pre-approved” means you understand all of your financing options and are totally clear on what you can really afford.
Don’t base the most important financial decision of your life on an Internet mortgage calculator! Knowing your true capability and options will seriously ease the San Francisco home buying stress because you know exactly what price range to look for in properties. You will be able to compare apples with apples, thus learning market value for yourself. Your Realtor will provide comparable sales data AND you should feel comfortable from your own “market research.”
Save your Sundays for the NYTimes Crossword!
** How do I find a good Mortgage Broker to help me with my “Pre-approval”? **
It is extremely important that you work with a reputable, reliable, and experienced mortgage consultant. There are many folks out there who will make promises they can’t or won’t keep. The age-old adage applies, “If it sounds too good to be true, it probably is!”
Finding the right loan consultant is NOT about rate-shopping. A good mortgage broker will get you the best rate and terms for you. It is about finding someone you can trust, who will explain everything to you in full detail, and who will perform on-time and as promised.
Ask your Realtor for their recommendations. Most of us have mortgage brokers with whom we work regularly and frequently. We know how they conduct business and we know we can count on them when the going gets tough….and it usually does at at least one point or another while in escrow. Since your Realtor has an ongoing relationship with the mortgage broker, they will be really committed to doing a great job for you. Instead of one loan, it is a continual flow of business. It’s in THEIR best interest to do right by you. Make sense?
Here are some helpful terms and definitions:
As always, send me a question about San Francisco real estate! I want to answer your home buying or home selling questions.
