Greater Tucson Real Estate Blog: Answers From a Mortgage Pro

The mortgage and lending industry is making headlines every day now, and consumers are being overwhelmed by the news that's brought to them. Buying a home can be stressful, but obtaining a loan for the home can be even more difficult and confusing for some consumers. It seems that many home buyers (and some real estate agents) have a lot of mortgage related questions but are afraid to ask anyone for help. For this reason I decided to "pick the brain" of a professional mortgage consultant I know, and get answers to some of those common mortgage questions. Perry works with Wells Fargo Home Mortgage, and he's agreed to be my "Answer Man". My plan is to provide a regular question and answer feature every few weeks. We are going to start off with the basics; I know that most real estate agents are already familiar with this information, but there's nothing like a refresher course! And this information is helpful to all those potential home buyers. Anyway, here we go!

Do I need to be Pre - Qualified for a loan before I begin my home search?

You should get Pre-Approved, not just Pre-Qualified. There are important differences for both you and the seller.

A Pre-Approval Letter is a written commitment from a lender, subject to a property appraisal and certain conditions, that lets you know exactly how much home you qualify for. The power of this document is that it authenticates that you are a viable buyer and tells real estate agents and home sellers that you already have your financing lined up and can afford to buy up to the specified amount.

The less substantial Pre-Qualification Letter can be helpful in determining the appropriate price range you should be shopping in but does little else. Because it’s based on basic financial data the buyer provides that has not been verified, it’s not worth much more to a seller than the paper it’s written on. Therefore a pre-qual should be thought of as a minimal first step, a step that’s often better to forego if time allows you to jump directly to the more useful Pre-Approval.

Advantages of being pre-approved

It's a smart move for serious home buyers to get pre-approved and here are some reasons.
Not only will real estate agents perceive you as a serious home buyer, but sellers are much more apt to accept offers from pre-approved buyers. Many sellers only accept offers that are accompanied by a pre-approval or “priority buyer” letter.

Helps you shop confidently because you know exactly how much you can afford.

A pre-approval gives you an advantage over other buyers who haven't been pre-approved, especially if multiple offers are presented.
The mortgage process goes more quickly once pre-approved since much of the work has already been done and the required conditions have been spelled out, giving the buyer plenty of time to comply.

“Not only will you know your housing budget to the dollar before you start looking for a home, you'll also have more negotiating leverage because the seller knows you've already got a loan virtually in your pocket”

Understanding your mortgage options gives you an advantage as you negotiate your home purchase.

Characteristics of a reputable lender

Never before has it been more important to choose one of the few remaining financially solid “Big Boys” as your mortgage lender. The mortgage industry is experiencing unprecedented times. Never have so many long standing companies gone out of business so quickly. Many of the departing lenders literally went out of business overnight leaving home buyers stranded at the closing table with no funds and no warning.

· You can ensure you’re working with a reputable lender by looking to a company with stability, integrity, capabilities and experience.

How does the process work?

Before you begin shopping for a home, call a reputable lender. Wells Fargo, Citimortgage and BofA are probably the only 3 major lenders that stand virtually no chance of going under anytime even remotely soon. Wells Fargo is the only one of those three lenders, the only bank in the U.S., to have the highest credit rating (AAA) from both Moody’s and Standard & Poor’s investor’s service.

How much should I be pre-approved for? It's a good idea to get approved for the maximum amount that you can qualify for (without wildly exceeding what you’re willing to spend) so that you're prepared.

You are not locked into the maximum loan amount. You are able to buy a lower priced home, lower your loan amount, or switch to another loan type. The beauty of having a pre-approval is the flexibility it provides for you and the ability to enter the real estate market with confidence.
fact...sellers are much more apt to accept offers from pre-approved buyers.

A home purchase is an important transaction. That’s why it’s important to work with experts committed to helping you make a smart investment. To maximize your purchasing power, rely on an agent who is a REALTOR® to help you find the right home, as well as a reputable lender to help you secure the right financing.