Let’s face it, this is a tough market for many buyers, not only in Tennessee, but around the Country. Houses are selling at record-breaking speeds, and with multiple offers well over listing price. In many markets, the days of getting a house for anything under list price are gone, at least for now. Luckily, our local market here in the Tri County Area isn’t as hectic as in places like Nashville, but it’s still quite competitive. Buyers need every advantage they can get, if they expect to produce a winning offer.
One way to be confident in your offer for purchase, and to help speed the closing process along, is to have a pre-approval done with a lender before even looking for a home.
Pre-approval is not to be confused with pre-qualification. Pre-qualification is a basic estimate from a lender of the amount of mortgage you might be able to obtain, whereas a pre-approval takes you through the complete underwriting process, and is more guaranteed. It takes longer, but is worth it in the end.
A pre-approval has several benefits that can help you stand out as a buyer in today’s market.
Disclaimer:
Before diving into the benefits a pre-approval has on the buying process in this market, I must state that I am only a Realtor, and not a financial advisor. None of the following is intended, in any way, to be taken for financial advice. These are general remarks on the subject, and your personal financial situation may call for more advanced services. I recommend you seek professional financial counsel from a qualified provider.
You’ll Know What You Can Afford
The first purpose of getting pre-approved is you know in advance what your budget will be, and you’ll be less likely to look at properties that are too far outside your limit. Going into a transaction without knowing you can procure lending may lead to heartbreak for you, and will be a waste of time for the seller. Many agents are making it a point to only work with buyers who have already been pre-approved. From the beginning of your buyer journey, it’s easier all the way around to go ahead and get started with a lender before looking at homes.
You’ll Craft A Stronger Offer
Secondly, once you’ve found a home in your price range, you may have the advantage of waiving the financing contingency of your offer. This move isn’t always recommended, and is something you should discuss with the agent you’re working with, along with your lender. In some cases, when a buyer is confident enough that getting the loan won’t be a problem, this could be an advantage. From the seller’s perspective, when an offer has fewer contingencies, it’s more favorable in that the transaction has a better chance to close, and close on time.
Bargaining Power
Getting pre-approved also gives you some bargaining power. Because you’ve demonstrated your creditworthiness and proven your ability to obtain financing, sellers may opt to go down on the price, since the sale has a greater chance of going through. An offer lower than listing price from someone who can prove their ability to get financing is much stronger than a full price offer from someone who hasn’t yet met with a lender.
May Close Faster
Pre-approval might help the sale close faster, as well. This is because much of the loan underwriting process has already been done, which potentially takes several days to accomplish. It takes on average 50 days to close on a house, so anything that helps to shave that time down will position you as a stronger buyer.
The Process
The process of getting pre-approved for a mortgage is pretty straightforward, and you’ll just need to gather a little bit of personal information to provide to your lender. You’ll need:
- Your SSN and other proof of identity for your lender to run a credit check and verify your debt-to-income ratio.
- Your proof of income from at least the last two years. This can be in the form of pay stubs, W-2s, 1099s, etc.
- You’ll also need an accurate accounting of all your other owned assets – this could be stocks and other investments, other properties which you may own, and anything else of significant monetary value that adds to your net worth.
Once the lender has everything they need, they will begin the underwriting process, which can take anywhere between 3-5 business days up to a week or two, depending on the lender and their process.
After you’ve been pre-approved by your lender, it is generally valid for 60-90 days, so long as you don’t make any big purchases or have any income changes during that time. If you don’t happen to find a home during the time frame of the pre-approval, you’ll have to speak with your lender about their policy for reapplying.
Where To Go Locally
Here in West Tennessee, and more specifically Benton, Carroll, and Henry County, there are many great mortgage brokers and lenders to work with. Speak with your Realtor about whether or not they have any recommendations in your area. If you’re not working with an agent, and need some recommendations, give me, Jesse Joseph with eXp Realty, a call at (888)519-5113 ext. 1290. I would be more than glad to assist you!