Only Serious Buyers Get Pre-Approved
Let's talk about getting pre-approved.
What We’ll Cover:
🔸 Pre-approval v.s. pre-qualification
🔸 Why is getting pre-approved so important?
🔸 Find the right lender for unique situation.
🔸 How can you tell if a lender is good?
🔸 Should you go to your bank for a loan?
🔸 Be aware of shady lenders.
🔸 Consider a local mortgage broker for a loan.
🔸 What documents do you need to get pre-approved?
🚀 Should you get a pre-approval or a pre-qualification?
The difference between a pre-qualification and a pre-approval is whether or not the lender verifies everything in your application. Think of a pre-qualification as telling the lender your finances, while a pre-approval is showing the lender your finances. If you’re only curious about what you might qualify for, then a pre-qualification makes sense. However, if you’re serious about buying a home within the next 6-12 months, then a pre-approval is best.
🚀 Why is it important?
Here are 5 reasons why you should get pre-approved.
1. Determine your budget.
Getting pre-approved gives you a clear idea of how much you can afford to borrow. The pre-approval process accounts for your income, credit score, and debt-to-income ratio. All this helps you set a realistic budget and narrows your search to homes that are within your price range.
2. Strengthen your offer.
When you find a home you love – chances are 10 other buyers love it also. So having a pre-approval letter shows the sellers you’re serious and qualified. It tells the seller that a lender has already reviewed your finances and is willing to lend you money. This makes your offer more appealing compared to buyers who haven’t been pre-approved. This can give you an advantage in competitive markets.
3. Saves you time and headache.
Getting pre-approved streamlines the entire process to save you time and headache. Your lender will have thoroughly reviewed your all of your finances. Documents such as your income statements, tax returns, and credit history. By completing this step before house hunting you can identify any potential issues early. Such as errors on your credit report or insufficient income for the loan you want. Fixing these problems in advance helps streamline your home buying experience.
4. Negotiating power.
When you’re pre-approved for a mortgage, you have a clear understanding of your budget. You’ll know exactly what your borrowing capacity is. This knowledge puts you in a stronger position to negotiate with sellers. Because you can confidently make offers and negotiate a deal based on your financial capability.
5. Faster closing.
Since you’ve already completed the bulk of the necessary paperwork, you can close quicker. Sellers may be more inclined to accept your offer knowing that financing won’t be an issue. This is also why it’s important to work with a reputable lender. Someone with a great reputation in the market. This can be beneficial especially in competitive markets where you’re competing with other buyers.
🚀 Find the right lender for your unique situation.
Finding a solid lender you can rely on is tough. Here are three ways that can help you find a good lender.
Option 1: Ask your real estate agent.
Agents often have experience working with different lenders. And this can provide valuable insights based on their interactions with past clients. Your agent can recommend local lenders who have a strong reputation. Just know that while your agent’s recommendation can be valuable, you're the final decision. So choose a lender that aligns with your needs and your goals.
Option 2: Ask for a referral.
The second way is to ask people you know who recently bought a home. Inquire about their experiences and if they recommend them. Personal referrals are a great way to receive valuable insights about a lender.
Option 3: Peruse the internet.
The internet is a powerful resource for finding any professional. Find lenders in the area you want to buy in, and give them a call. Ask about their loan programs, rates and fees, and customer reviews.
Just remember that what works for one person – it may not be the ideal fit for another. So do your own research and due diligence. I recommend interviewing at least 3 lenders before picking one.
🚀 How can you tell if a lender is good?
To determine if a lender is good, there are several factors to consider.
First – Reputation & reviews.
Research the lender’s reputation and reviews. Peruse their website, social media profiles, and review pages. Positive reviews from happy clients can indicate a lender’s reliability and professionalism. In the other hand, negative reviews may signal potential issues to be aware of.
Second – Rates & fees
Knowing if a mortgage lender's rates and fees are competitive is crucial because it saves you money by lowering monthly payments and overall interest costs, allows for comparison to find the best deal, and supports long-term financial planning.
Second – Transparency & communication.
A solid mortgage lender is transparent and communicates throughout the loan process. They should be responsive, provide timely updates, and be willing to educate you. They should help you understand the financial obligations associated with your mortgage.
🚀 Should you just go to your bank for a loan?
While big banks can offer certain advantages, there are also potential drawbacks to consider. Here are (3) challenges I oftentimes come across when working with big bank.
First – they’re slow.
In competitive markets like Los Angeles, you need to close quickly. Big banks are notorious for their slow decision-making and processing. Due to their size and politics, big banks tend to have longer turnaround times. This can cause delays and may not be ideal if you have short deadlines.
Second – lack of options.
Big banks often have standardized loan products. This limits their ability to tailor the mortgage to your unique needs. As a result – less flexibility and less favorable terms.
Third – less personalized service.
Big banks typically assist a LARGE customer base. This means you’ll likely receive subpar service compared to smaller lenders. It may be challenging to establish a direct relationship with a loan officer. Which can present a problem when trying to close a deal.
🚀 Be aware of shady lenders.
One of the biggest mistakes many buyers make is working with a lender who’s desperate for business. Here’s what happens. A lender may entice a buyer with an insanely low interest rate, creating a sense of affordability and excitement. The buyer goes shopping for homes with this low interest rate in mind. They find their dream home and make an aggressive offer. The buyer is now in escrow, and the loan goes through underwriting.
Think of the underwriter as the gatekeeper who will either pass or deny your loan. They are responsible for verifying everything you submitted to the lender. It’s here where the buyer finds out that the initial quote the lender provided is no longer available. By this stage, the buyer is usually well into escrow, leaving them with limited options to change lenders or cancel the sale. As a consequence, the interest rate you end up with is higher than what was expected, rending your monthly payments unaffordable and outside your budget.
This scenario is more common than you might think. I like to use the “Gas Station” analogy. Imagine if a gas station is selling gas for only $1, while the average price in the area is $5. Naturally, you would be curious as to the reasons behind this significant price difference. Perhaps there’s a fine print or hidden conditions, like having to purchase a monthly membership or make a large additional purchase to access the deal. The same principle applies to interest rates. While there may be slight variations among lenders, they should generally be around the same rate.
As the saying goes, “If something seems too good to be true, it probably is.” Let this serve as a cautionary tale as a reminder to thoroughly vet and choose a reliable lender who will deliver on their promises.
🚀 Consider a local mortgage broker for a loan.
As an alternative to working with big bank - consider working with a local mortgage broker. Here are three huge benefits of working with a local mortgage broker.
First – Access to multiple lenders.
Wholesale mortgage brokers work with a network of different lenders. This includes banks, credit unions, and other financial businesses. This wide range allows them to shop your loan around to compare products, rates, and terms. As a result, they can offer you a wider range of options. And potentially finding a mortgage that best suits your requirements.
Second – they can close quickly.
Mortgage brokers streamline the entire mortgage process. They handle the loan application, documentation, and submission process. They manage the paperwork and ensure all the necessary docs are prepared and submitted. As a result, this speeds up your loan approval and closing process. And in competitive markets – this can be the difference between winning or losing your dream home.
Third – Personalized service.
Local mortgage brokers often prioritize personalized service. Unlike big banks, they aim to build a direct relationship with their clients. They take the time to understand your unique financial situation, goals, and needs. This personalized attention can result in a more tailored mortgage that align with your vision.
You’ll want to research and compare different mortgage brokers. Make sure they have a strong reputation. Look up their customer reviews and ensure they’re positive. And verify their licensing and credentials. These tips should help you find a reliable professional who can meet your mortgage needs.
🚀 What documents do I need to be pre-approved?
For a proper pre-approval, you typically need to provide certain documents to a lender. The exact requirements will vary between lenders and your unique financial situation. But here are (5) common items needed if you’re getting pre-approved.
One – Identification.
You’ll need some form of valid ID such your driver’s license or passport to verify your identity.
Two – Proof of Income
The lender wants to see income and job stability. Examples of this include pay-stubs, W-2 forms, and tax returns. If you’re self-employed, you might submit a profit and loss statement and business tax returns. Some lenders may require verification of your employment. This can be done in two ways: Either a letter from your employer or the lender will contact them directly. Their purpose is to confirm your position, salary, and length of employment.
Three – Proof of Assets
The lender wants to see your financial assets. This helps verify you have money for the down payment and closing costs. Examples of this include bank statements and investment accounts.
Four – Credit Information
Your credit is extremely important when getting pre-approved. Lenders will assess your creditworthiness, so they will do a hard run on your credit. They will analyze your credit report and credit score.
Five – Debt & Liabilities
You’ll need to disclose ANY debt or financial obligations that you have. This includes things like credit card debt, student loans, and car payments. The reason lenders need this information is because it helps them calculate your DTI. DTI stands for debt-to-income ratio. DTI compares your monthly debt payments to your gross monthly income. This helps lenders assess your ability to handle a mortgage alongside your already existing debts.
It’s important to note that specific requirements may vary between lenders. So consult with your own lender to understand what they need for a proper pre-approval.
🗣 TLDR
Getting pre-approved for a mortgage is crucial for a clear understanding of your buying power, monthly mortgage, loan amount, down payment, and closing costs. Working with an independent mortgage brokerage may save you money compared to a big bank.
✌️ & 🖤,
James Paul Valerio
(323) 420-4669
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James Paul Valerio
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