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Tuesday, September 2, 2014

Why Do I Need A Pre-Approval Letter?

There are many reasons as to why you should have a pre-approval letter before you start looking for a property. Here is a few of the main reasons why you need to have one:

1.   You will know how much money you ACTUALLY qualify to borrow.Most people have an amount that they feel is a comfortable budget for them to pay for their monthly mortgage payments. But when looking to buy a home there is no sure fire way to translate that monthly payment into a specific maximum mortgage amount because other things like -- down payment percentage, mortgage insurance, property taxes, adjustable interest rate and such are all a determining factor in what the monthly payment will be . Plus you may not be qualified to borrow as much as you think due to credit scores, past due accounts, current financial obligations and most of all your income. 

2.   Your real estate agent will work harder on your behalf. Let's face it no one likes to waste their time. Having a pre-approval letter tells your agent that you are serious and well qualified to buy a new property. The likelihood of a closed sale and a commission will naturally motivate your agent to devote more time and energy to you and your property search. Just an FYI some agents won't even show properties to buyers who don't have a pre-approval letter.

3.   You'll have more leverage in negotiations with the seller. Sellers are more likely to consider negotiating with buyers that have been pre-approved because then they know that they are NOT wasting their time and energy.

Just a few key notes:
  • Pre-approval letters aren't binding on the lender,
  • They are subject to an appraisal of the home you want to purchase, 
  • They are time-sensitive,
  • A pre-approval letter is more reliable than a pre-qualification letter, 
  • If your financial situation changes (e.g., you lose your job, lease a car or run up credit-card bills, interest rates rise or a specified expiration date passes) the lender will then have to review your situation and recalculate your maximum mortgage amount accordingly. 

There is nothing worse then finding the home of your dreams and then finding out that you can't qualify to purchase it. It happens ALL to often. So before you start looking for your new dream home please consider talking to your lender about obtaining a pre-approval letter so that your prepared for the next step to home ownership!

Your Realtor,

Luke Hansmeyer, Real Estate Professional
Real Living Messina & Associates, INC.
1512 E Superior St, Duluth