Why?
Because in today's real estate market you are dealing with homes that could either be on the brink of foreclosure and are going to be "Sold Short" or have already been taken back by the bank and are now "REO". In Both of these cases, as a buyer you won't have a chance unless you have been pre-approved. Even with homes that are not in trouble, savy Sellers are not messing around with Tire Kickers - They're instructing their Real Estate Professional to only bring them buyers who have been pre-approved.
Combine this with the incredibly low interest rates (as of this post 9/17/12 - a 30 year fix rate mortgage can be found for less than 4% which is incredible! of course rates are affected by your personal situation) and you have a market that is highly competitive and if you aren't ready to act - chances are you won't even get the opportunity.
But I'm pre-qualifed you say! In today's environment that doesn't mean a whole heck of a lot! Consider the differences between Pre-Qualification and Pre-Approval.
PRE-Qualification - You are providing basic information to a lender (Mortgage Banker or Bank) such as debt to income information (what you earn, what you owe). You don't provide any personal information such as your SS number to run a credit check and you don't fill out any paperwork - and they give you a guesstimate of what you can afford - How Qualified is this really?
Pre-Approved - Means you have gone through the Application Process already. You've supplied your lender (Mortgage Banker or Bank) with all of your documentation, they've done their background work and have provided you with a PRE-APPROVAL letter which outlines the details of how much you are approved for SUBJECT TO: (among other things) finding the home, receiving an Appraisal on the Home that is acceptable to the lender, perhaps updating of your personal information prior to closing and other conditional items that relate to the home or you. You may or may not have locked in an rate.
Pre-qualified or Pre-approved? How Serious Are You?
So with that in mind, here's what you can do to increase your chances of finding the right home and acting on it quickly. Investing a little time upfront is going to save you money and heart ache in the long run!
#1 Align yourself with an experienced and knowledgeable Real Estate Professional who knows the market you are looking in and the types of properties that you are looking at. What services are they going to provide you? Buyer Agent or Facilitator? Make sure they disclose this to you.
#2 Get the names of 2-3 Local Mortgage Bankers or Local Banks and contact each of them to have a sit down or phone conversation to get to know them and learn what types of Mortgage programs they have to offer you (there are so many mortage programs you want one that is going to fit your particular situation. When you find the Lender that you want to work with get Pre-Approved! (notice the emphasis on LOCAL - I've seen many a situation where a buyer has applied for a loan from a company based out of state. When it comes time for closing having a local lender is going to make your life easier should there be any hick-ups with the loan. If you are dealing with a lender that isn't even in the state you are buying in - oh the head ache! - Keep it local!).
Here is the list of items that you will need to get pre-approved (this may not be all inclusive)
* One full month's worth of pay check stubs
* Most recent two Months Bank Statements for all accounts
* 2 Years W-2's
* Self Employed (including commission, dividend or rental income to qualify) - last 2 years tax returns with all schedules
* Employer Information for last 2 years (name/phone/address)
* Landlord Information for last 2 years (name/phone/address)
* Copies of SS, Pension and/or retirement award letters (if applicable)
* If you have any derogatory credit and explanation letter (if applicable)
* Documentation to support your funds to close
* If you have filed Bankruptcy - discharge paperwork
* If you have Divorced - Divorce decree and settlement paperwork
Oh, and if you plan to pay cash for a home, be prepared to have your financial institution prepare documentation for you indicating that you have sufficient funds for the purchase of what ever property you decide to put an offer on (This documentation should also include the address of the subject property and the price that you are going to be offering).
And if this isn't enough, my friends over at KCM put a good post together on what you need to get pre-approved Proper Planning for Your Mortgage Application -
Good luck and Happy Home Hunting!
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