Why Get Pre-Approved?

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Monday Nov 23, 2009

When purchasing a home, it is important for buyers to get pre-approved before they make an offer. Investor guidelines are constantly changing, so it is important to know if a buyer is qualified to purchase a specific property. Lenders review each buyer's credit history, income, and assets. This information helps lenders determine whether a buyer will be able to obtain a loan based on current lending guidelines.

Credit history helps the lender determine the buyer's ability to repay the loan in a timely manner. Examining a buyer's income lets the lender know if the buyer will be able to afford the proposed housing expense in addition to any other monthly obligations the buyer has currently. Lastly, a review of the buyer's assets lets the lender see if the buyer has enough funds for the down payment and any closing costs associated with the purchase.

Once these factors are reviewed, a pre-approval letter can be issued to the buyer and the buyer's realtor. This letter is presented to the seller with the offer letter. A pre-approval letter strengthens the buyer's offer because it shows the seller that they are able to obtain financing.

Posted at 03:35PM Nov 23, 2009 by Carrie Bertsos in Financing Comments[2]

Comments:

Thanks for your article, which may be useful for retail residential buyers, but unfortunately, your advice is not useful for real estate investors that are capitalizing on these very prices. You specifically mention investors in your second sentence. Many investors do not get their loans from mortgage brokers, or low-level loan officers. Furthermore, title is often not held in an individual name, but in a company (which automatically means mortgage brokers won't even answer calls from investors). Many of us have bankers that do not just analyze the credit of individuals but on the merits of the particular property and the income it generates. I recently had a agent (not at Dreamtown, but at a different, similarly sized firm) tell me that they would not take me on as a client because my bank would not offer a preapproval letter. This shows the inexperienced nature of some real estate agents. It is annoying. It is also embarrassing when I ask my banker for a preapproval letter and he goes on a tirade about how preapproval doesn't actually mean anything, and that real estate agents are ignorant about commercial real estate business! Loans are approved on a deal-by-deal basis. Preapproval is not the entire underwriting process, and I am sure even Dreamtown has had clients with preapproval letters unable to close at the end.

I am not a Dreamtown client (but I like your blog). Keep up the good work, and please give us investors the benefit of the doubt - we know what we're doing.

Posted by josh on November 28, 2009 at 03:40 PM CST #

Yeah, I was in the mortgage and real estate industry not to long ago, and the ratio of those who were pre-approved getting their home to those who weren't was tremendous.

Posted by Business Loans on February 02, 2010 at 10:02 PM CST #