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“Have you been pre-approved by a mortgage broker or your bank?”
This is the first question you should hear when you engage a realtor for the first time. And if you have been planning this purchase for any amount of time the answer to this question should be YES! But here’s the thing, not all pre-approvals are created equal. The definition of a pre-approval can range from a fully underwritten conditional commitment defining rate and terms to a side of mouth suggestion to what you should be able to qualify for based on a 5-minute conversation with a bank employee. I prefer the former and I’ll explain why you should too.
Let’s first unpack the term pre-approval. To many this term means “approved pre-purchase agreement”. No, a pre-approval does not mean your approved for anything. Think of a pre-approval more like “pre-requisite”
pre·req·ui·site /prēˈrekwəzət/ noun
- a thing that is required as a prior condition for something else to happen or exist.
This is why you will hear me advocating the use of the term “pre-qualify” instead of pre-approval. So where does the term pre-approval come from? It came from the branch. You see, after a five-minute conversation, if your banker tells you that you’re pre-approved, they can almost guarantee that when you leave the branch you will not cross the street to speak with the banks competition nor will you contact a broker. You don’t have to after all as your “pre-approved” by your bank. This is where many would-be borrowers get into trouble.
I like to go deeper with my clients. My mortgage pre-qualification process starts with a full application. This application is completed by you either over the phone or via a link to my application program sent out via email. Once the application is complete, I will request a couple of verification documents like a pay stub and letter of employment. Next, we can pull your credit and liabilities into the application. Now we are looking at the whole picture. Now we can discuss your maximum borrowing power, different lenders products, rates and terms, your monthly budget and credit score. This is when we can establish whether you’re ready to buy now and for how much or whether we need to build a plan to reduce liabilities, add a co-applicant or increase savings for a down payment.
Now you should be pre-approved right?
Not exactly. You see, at this stage, there is something particularly important missing from the equation – the property itself. Even though I can say with near certainty that the lender will love you, I cannot say the lender will love the property you choose. This is where many mortgage applications fail. The property could come in under value, there could be risky pending litigation or a multi-million-dollar special assessment coming soon. All reasons the lender could stamp your application as declined.
So please do yourself and your realtor a favor and get pre-qualified by a licensed mortgage broker. This process can drastically reduce unnecessary stress caused by poor planning or worse, poor advice. Contact me to schedule a phone or zoom call .
