![]() Know what you can afford, then start looking. There’s no use getting your heart set on a certain size, style, or location of a house based on a guess. A pre-approval is the only way to truly know what price range you can qualify for. Get serious about your homebuying goals, and prepare to submit your complete financial picture to the lender.Ī smart buyer will do this long before they want to buy a home. These companies take the pre-approval idea to the next level: They back their approval with cash to give their buyer the highest chance of an accepted offer. It seems like every few months, new cash-offer companies with strange names like Zigzy and Knock are entering the market, capitalizing on home sellers’ high expectations. Real estate startups like HomeLight and Orchard are emerging to turn first-time buyers into cash buyers, and lenders are getting into the game as well. These services give the seller confidence that the sale will go through quickly, even if there’s an issue with the mortgage. Ganz is referring to programs in which an entity will purchase the home in cash on the buyer’s behalf and complete the mortgage after closing. “But if you look at the trend, everything is going toward cash guarantees.” “Everyone now is collecting full documentation at a minimum,” said Ganz. Pre-qualifications are already a relic, and pre-approvals may not be very far behind. It would be only after you’ve received an accepted offer from the seller that you find out your “approval” is worthless.Įxpecting a first-time homebuyer to report every potential lending issue in their life is akin to your local lawnmower repairman telling Elon Musk how to build a Tesla.Įven if a lender would agree to issue an approval without verifying your situation, that piece of paper would only be fit for the recycle bin.Įven a Pre-Approval Sometimes Isn’t Enough With no credit report, they would never know. Or, you forget to tell your lender a “minor” detail: A bankruptcy five years ago. You think you make $100,000 per year, but your write-offs mean the lender can only use $50,000 to qualify. You would be hard-pressed to find a lender to issue you a pre-qualification at all.įor instance, say you’re self-employed. A small detail could derail the entire approval. In the days of no-income, no-asset, no-nothing loans, why would a loan officer process a stack of paperwork? Pre-qualifications were popular before the housing meltdown of the late 2000s. Why a Pre-Qualification Is Essentially Worthless » Expert Tip :Looking to buy soon? Set yourself up for having your offer accepted on a home by getting preapproved for a mortgage prior to your home search. ![]() In other words, agents are verifying that the loan officer isn’t just typing up a letter on company letterhead and emailing it over.ĭon’t have a rock-solid, fully-documented pre-approval? Some sellers won’t even dignify your offer with a response. ![]() ![]() You’re not going to get your deal accepted if you don’t provide it.” ![]() Ganz said that Fannie Mae and Freddie Mac prohibit supplying the DU and LP result, but “the agents don’t care. “In certain states like Florida,” said Ganz, “all the real estate agents ask for DU or LP,” which refer to Desktop Underwriter and Loan Prospector, Fannie Mae and Freddie Mac’s respective computerized underwriting results. Phil Ganz, a loan officer with Movement Mortgage and creator of, reports what’s happening in the fiercest markets. This is another reason sellers and their agents require one: It shows you’re serious.īut even a pre-approval is just a piece of virtual paper that can be faked. Not just anyone can receive a pre-approval. It has examined your debt-to-income ratio and determined a maximum home price. In other words, the lender has calculated income, totaled your assets, and performed a hard credit pull. And they only know if you’re qualified if you supply a pre-approval – a full mortgage approval in which the lender has reviewed everything except the property. If they don’t get one, they look for a well-qualified mortgage buyer. Even as competition has cooled in late 2022, there are still only 1.28 million homes on the market in the U.S., compared to more than 2.2 million prior to 2016, according to the National Association of Realtors. ![]()
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