by Broderick Perkins
(5/24/2012) Competition from investors, all cash buyers and multiple offers mandate the need for a mortgage preapproval in today's market.
Real estate agents say you'll tie their hands if you walk into their office without mortgage money.
Competition is fierce in some locations and sellers who've finally ventured into the market don't want to hear about your pipe dreams. They want you to show them the money.
"In many parts of the country, we are experiencing multiple offers and homes are selling before buyers who have not been through the pre-qualification process have an opportunity to meet with lenders to become qualified," Sheri Moritz a real estate agent with the Next Home Team - Keller Williams in Raleigh, NC.
You aren't only competing with traditional home buyers. Investors, many of them loaded to bear with all-cash deals, young-professionals with stock options and buyers with A-1 credit and the loans to prove it will have you over a barrel if you haven't passed muster with a lender.
"This is not the market of 2007 to 2010. I don't know about the rest of the country, but in the Phoenix (AZ) market, you have to put in five to seven offers on average just to get a home," said Patrick Jorgensen an associate broker with the Artisan Real Estate Group in Phoenix.
Moritz says prior to applying for a mortgage, pull your credit report and give it a once over.
Check your credit
"It is imperative that buyers start with checking their credit prior to beginning the home buying process and as soon as they are even considering buying a home. They should speak with an experienced loan officer and have a tri-merge credit report pulled including credit scores," Moritz said.
Anyone can get a free credit report from all three credit reporting agencies - Equifax, Experian, TransUnion - from AnnualCreditReport.com. It is the only federally-sanctioned and approved source of no-strings-attached free credit reports. Seek your report elsewhere and you'll likely be sold a credit monitoring or other credit service before you get your "free" credit report.
Checking your credit report before the lender sees it gives you time to correct errors or mistakes and even improve your credit score by paying down debt or paying off accounts to reduce your debt load.
"With lending guidelines tightened, many people are finding they have an issue or several to deal with to get their credit report and their score into the acceptable range for obtaining a mortgage," said Moritz.
Jorgensen said shop around for a lender with a staff trained in all types of mortgages.
"Lending guidelines are constantly changing, so you need a lender that is versed on all products - Federal Housing Administration (FHA), Veterans Affairs (VA), U.S. Department of Agriculture (USDA) and conventional. There are also subsets of each different loan product," he said.
Jorgensen also said you'll have to bring to the lender a host of documents to prove statements you make on your mortgage application.
Borrow what you can afford
"Most buyers will have to furnish the lender with bank statements, pay stubs and W-2's just to start. A good buyer's agent will let their buyer know this up front so their client will not be surprised when the lender asks them for this documentation," Jorgensen added.
In addition to letting the seller know you are a serious buyer, which puts you in a good negotiating position, a mortgage preapproval lets you know how much you can afford to spend on a home.
Even today, lenders will loan you money based on your gross income, but what you can really afford is based on your take home pay.
"Be sure that you have been preapproved, not pre-qualified for your home purchase. With a prequalification, you provide information concerning your income and expenses to the lender, but not documentation to prove it. This is not considered strong proof of your ability to actually obtain a loan," said Christine Donovan a real estate broker, attorney and mortgage consultant with Donovan Group Realty in Costa Mesa, CA.
"To make your offer stronger, be sure that you have provided all necessary documentation such as W2s and bank statements to your lender, and ask if he can obtain a desktop underwriting approval to make your approval even stronger," Donovan added.
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