Active Rain May 6, 2009

The Incredible Importance of a Pre Approval

Get a pre -approval before you make an offer on a new home. Here’s why. 

85% of my business is on the listing side representing sellers. There is no setback in real estate as devastating as the “deal dying.” Typically, when a deal has died in my experience, it has been because the buyer was unable to perform. In many cases, the buyer meant well and was sincere, but either they, their agent, or both were unaware of conditions in their income, credit or cash position that prevented them from being able to close.

There is nothing that can be done to prevent the loss of a job. But there are many things that can complicate your approval process that you may not be aware of. Thinking you have good credit and some cash isn’t enough. You might not have been in your 1099 job 2 years yet. Your debt to income ratio may be off because you co signed for someone. Your FICO score might be lower than you think it is. Your overtime may not count as much as you think. Need I go on? 

If you submit an offer on one of my listings, my seller will not take the house off the market into contract for you until we have absolute assurance that you have been to the bank, had all your information and assets verified, and have been issued a Desktop Underwriting approval. DU is the software that mortgage professionals use for most conventional loans to evaluate borrowers before they issue a pre approval. Otherwise, an accepted offer in July could turn into the house going back on the market in the Autumn with the holidays around the corner. In cases where timing is crucial, this can be a horrible setback. 

Getting pre approved takes 15 minutes. You shouldn’t be insulted that you are asked to be pre approved before an offer is accepted, and if you are you’ll actually attract suspicion. Given the simplicity of the process and all that is at stake (In Westchester County, my local market, the median sales price is still well over a half million dollars), it only makes sense to “show them the money.” While questions about your ability to buy may seem intrusive, given the stakes, they are needed. Moreover, if you are competing against other offers, the one with the pre-approval will be taken far more seriously than one without. Just do it. It gives you leverage as a buyer, and it assures the seller what you know all along, which is that YOU are the person with whome they should do business. 

If you are an agent, you should not go very far with any buyer until they have gone through the pre approval process. Otherwise, you run a high risk of being an expensive tour guide.