Why You Should Obtain a Pre Approval Letter Before You Start Your Home Buying Adventure

So you’ve made the decision to purchase a home and you are raring to go. The first thing you do is call your favorite realtor and start setting up showings right? Well, not really. As exciting as it is to start shopping, the first thing you should be doing is connecting with a lender. When people call me and tell me they are ready to start looking for a home the first thing I say is congratulations! The next question out of my mouth is, “Have you spoken with a lender and have you been pre-approved?”

How do you get pre-approved?

Purchasing a home is a team effort that includes a buyer, realtor, lender, escrow & title company and a seller. When you take the time to understand how the process works and why it is beneficial to follow the steps it makes things so much easier for everyone involved.

When you choose the lender you will be working with it is important that you feel like you can talk to him or her. You will be sharing private financial details so it only makes sense that you feel you can trust them and speak openly with them. In my opinion, it is also important to use a local lender. Local lenders understand all of the nuances of lending here on island including ie: lava zones and tsunami evacuation areas etc. Once you have chosen your lender, the first step is to become prequalified. Basically, this means that you fill out a short application either online or on paper stating income and debt. Based on this information, a lender will give you a ballpark figure on a price range that you can begin to shop in. Obtaining a pre-approval letter is more involved and will give you a much clearer picture of the price range you should be looking in. You will have to supply documents that the lender will use to verify your income as well as debt.

Why is it important to do this before you start shopping?

A few things come to mind for me. Why would you want to start shopping when you don’t have a budget? You might think you can afford a certain amount per month but the lenders and banks might beg to differ. This can work both ways too. You might actually qualify for more than you think which means you would be selling yourself short on a home. Another thing to think about is the seller. Although their house is on the market and they do want to sell, it takes effort to sell a home. I equate it to having company over all the time. People that really want to sell their home will tidy up and make arrangements to leave so that buyers can come and feel comfortable when they are previewing the home. Add in a few children and family pets, and it adds to the chaos. Also, in many cases, the seller’s agent must be present for showings which is one more person in the mix. In looking at things from a seller’s standpoint, doesn’t it make sense to have all of your ducks in a row beforehand?

So you have your prequal, now what?

Now the fun begins! This is the point in time when you will sit down with your Realtor and discuss your dream home — all of your must-haves as well as the things that are deal breakers. The more information you can give to your agent the better in my opinion. At this point, your agent will provide you with a list of properties that best match your criteria for you to review. Once you have looked over the listings and if possible driven by the properties you can let your agent know if you would like to preview the properties. If all goes well and you decide to make an offer on a property your agent will write up a Purchase Contract which when submitted to the seller’s agent will include your Pre-approval Letter from your lender. Often times sellers will receive more than one offer on their property and they will need to compare all offers and decide which offer looks like it is the strongest. When you have a Pre-approval letter it is a sign to the sellers that you are a serious buyer and that you have already taken the steps necessary to move in the direction of purchasing a home.

Purchasing a home can be many things all at once, stressful does not need to be a part of the equation. If you would like to more about the home buying process feel free to reach out to me, I would love to help.