Getting pre-approved1 from a mortgage lender is a smart step to take early in the home buying process, as it sets expectations, builds confidence and establishes a relationship with a lender. And in today’s competitive market, a pre-approval letter can sometimes mean the difference between a seller accepting your offer or passing you over for someone else. Jules Deas, a mortgage loan officer with SunTrust Mortgage, shares his insights on how pre-approval can pay off.
Why is pre-approval such an important step? Specifically, what does it communicate to the seller?
We typically suggest people hand over their offer with a pre-approval letter to match it. If somebody provides an offer without a letter, the seller’s real estate agent is almost certainly going to ask, “Well, hey, where's your letter? Have you talked to anybody about financing yet?” Having a letter is a sign to a seller that you're prepared, and it can help them separate your offer from somebody who may not provide a letter.
When should an aspiring homebuyer begin looking into pre-approval? How long does the process typically take?
If you're already looking for a home and you’d want to make an offer if the right house were to pop up, you should be talking to a lender about getting pre-approved. Even better, you should talk to a lender before you even begin your search so you know what you may be able to borrow.
Pre-approval can be done a couple of different ways. Today, there are online inquiries that can typically be completed in 10-15 minutes. In fact, it’s often possible to get a response that same day. We can also, of course, accommodate borrowers who may prefer to get pre-approved in person or over the phone. In either case, our goal is a very quick turnaround so they can be ready to make their offer.
How can a homebuyer check that the approval amount in the letter aligns with their monthly budget?
More often than not, we find that people qualify for much more than they actually want to spend monthly. And to keep their budget conservative, they’ll end up searching within a price range that’s a lot lower than their maximum qualification. What's important is not the maximum they would qualify for, but the amount they're comfortable with paying each month and making sure that number works with their budget. So the lender should tailor the letter accordingly in discussions with the buyer and listing agent to strike that balance of what they qualify for and what fits their desired budget.
What if the pre-approval amount ends up being more than a home’s listing price?
We tell the borrowers that if they end up wanting to offer less than what they are qualified for, we’ll update the letter amount. A pre-approval letter shouldn’t take away negotiating power. If a seller sees you are qualified for more than you offer, they could try to take advantage of that.
Are there scenarios in which a pre-approval letter can be make-or-break to the home buying process?
Absolutely. Many housing markets have low inventory and there is huge competition among buyers, so it's almost always a multiple-offer situation. If you put yourself in the seller's shoes and look at two identical offers, one with a pre-approval letter and one without, you would certainly lean toward the person who was already considering their financing options by getting a pre-approval letter. Also, having a letter from a respected lender might also beat out a vague letter from a less-recognizable institution. There’s something to be said for a formal letter from a strong brand.