Loan Preparedness: San Diego Real Estate Purchases

Advantages of “Pre-Approved” vs. “Pre-Qualified” for Home Loans

Homes in San Diego are the largest investments most people will ever make. To complete the real estate buying process with confidence, be prepared in advance.  First, it does no good to spend time shopping for San Diego homes for sale unless you’re in the position to buy. Second, even the most qualified buyer will face delays getting a mortgage if the loan documentation is not in order and promptly submitted for processing.

The Wrong Approach: Get started right away looking at homes for sale.  If you find one you like, then maybe calculate some rough numbers and make an offer.  After the offer is in, then apply for the mortgage financing.  So, what’s wrong with this process? It causes stress. A lot of it.

To avoid the home buying stress, a qualified San Diego Realtor will advise you to meet with a lender before you look at homes.  The lender will review your loan options and then give you a pre-qualification or pre-approval letter. Without this letter, most home sellers will not even consider your offer.  With a letter from a reputable lender, your odds of acceptance increase tremendously.

Don’t confuse pre-qualification with pre-approval. Get pre-approved!

Pre-qualification is not a loan commitment from a lending institution. It’s a loan agent’s opinion that you’ll be able to obtain financing, and is usually based on a quick review of your credit report and your pay stubs. These days, anyone can get a pre-qualification letter. Quite frankly, it’s not worth the paper it’s written on, unless the seller personally knows the loan agent involved, is 100% confident that the loan agent can obtain a loan commitment, and is willing to bet the sale of their home on it (very rare).

Pre-approval, on the other hand, is a written commitment by the lender (not the loan agent), that you may borrow a specific loan amount. To get a pre-approval, you actually apply for a San Diego home loan. The loan agent puts together a “credit package” – a complete loan application, your credit report, complete income documentation, asset verification and any supporting documentation needed – which is then submitted to the lender. The lender actually “underwrites” your file and issues a credit approval, or pre-approval, subject to finding an acceptable property.

Remember, once you submit an offer to buy a property in San Diego you only have a short period of time to select a loan program, complete the loan application package, and obtain loan approval. Many San Diego real estate transactions fall out of escrow because the buyer (even with a pre-qualification) is unable to qualify for a large enough mortgage with acceptable terms, sending you back to begin the process all over again.

The advantages of being pre-approved, rather than just pre-qualified…

• Working with a loan consultant first allows you to decide what type of loan product is best for you. When you already have an accepted offer, and the clock is starts ticking.  Under pressure you take whatever you can get, without being able to really investigate the loan products available and how they might help you meet your financial goals.
• Getting pre-approved for a loan lets you determine, in advance, how much money you qualify for, and in what price range you can purchase. As a result, you do not waste your time looking at homes that are out of your financial reach and worrying about whether you will be able to get a loan.
• Taking the time to be pre-approved also allows you to select a loan amount that is comfortable for you. Quite frankly, many buyers can qualify for mortgages that are more expensive than what they really want to pay. Buyers can find themselves being pressured to buy a more expensive house than they want simply because it works on paper. Spending the time to be pre-approved gives you the confidence that you are purchasing a home that you can own – not one that will own you.
• Having a pre-approval letter from a lender gives you an edge in a multiple-offer situation. Look at it from the seller’s viewpoint: They don’t want to keep their home off the market for 30 to 60 days, only to have the transaction fall through because the buyer couldn’t obtain financing. By that time, a “hot” housing market can cool considerably, leaving the seller to sell their home in a less-than-favorable market. With a pre-approval letter, your offer will carry considerably more weight than offers with only a pre-qualification letter or no letter at all. In fact, sellers have chosen to accept offers of lower dollar amounts from pre-approved buyers over higher offers from buyers who have not been pre-approved. With a pre-approval, they are more confident that the deal will go through.
• Pre-approved buyers can close escrow more quickly. You have already submitted your “credit package” and had it approved. When a property is found, a “property package” is then assembled, consisting of the purchase contract, an appraisal, the preliminary title report and any required inspections. The property package is submitted to the lender, loan documents are drawn and signed, and the escrow is closed. This portion of the process can take as little as 10 days (depending on the market and the inspections required). With the traditional process of finding a home first and then obtaining the financing, it takes 30 to 60 days to close escrow.

There is one caution about using a pre-approval letter. If the letter states a maximum loan amount higher than the price the buyer is offering for a home, a savvy seller will counter-offer for the highest amount for which the borrower has been pre-approved. It is wise, therefore, to request a letter with a specific loan amount based on the price you are offering for the home to present with the offer. A good loan agent, one who cares about serving your needs, will not have a problem accommodating this request.

Call us anytime for the names of the THREE BEST loan consultants in the San Diego area that can help you with any home buying or refinancing situation. Call Geoff or Anne-Marie at  (619) 857-7203.

This free report is provided as a consumer education service of The Real Estate Consulting Team of Schiering & Schiering at Keller Williams Realty. To receive a complete list of free reports available in our Special Report Series, please contact us on this website or call 619-857-7203.