In most real estate markets today, if a residential property buyer isn’t fully pre-approved for a mortgage loan, the chances of any seller taking that buyer’s offer seriously is very slim. The reason is probably obvious, but a pre-approval is validation that the loan has been pre-underwritten (or at least it should be), which provides the seller confidence that the transaction will close. In order to become pre-approved, all information submitted on the loan application has to be verified by documentation provided by both the borrower and third parties. In fact, the average file today has over thirty components to validate a loan approval — 30+ components — more than half of which are third party!
A pre-qualification is nothing more than a discussion around a buyer’s loan qualifications. For example, if one uses the AMB 5X Rule, which states that five times one’s gross annual household income equals the approximate loan amount one qualifies to receive, then we know that a $100,000 salary means that one may be able to afford a $500,000 loan. But then employment, income, assets, credit, obligations and declarations all need to be discussed to refine one’s qualifications. Taking the next step towards validating everything then fully vets a buyer’s true qualifications and approval allowances.
Most importantly, the biggest benefit to the pre-approval process is that it empowers the buyer to execute confidently. Think about it; if one has had a thoughtful, detailed discussion and analysis around the largest loan one will likely have, both short and long-term goals need to be taken into consideration. Questions around future employment, lifestyle, family planning, retirement, cash flow, housing goals, etc. all need to be taken into consideration to effectively pre-approve anyone and get them truly excited about a new property purchase. Doing so benefits both buyer and seller and makes for an ideal transaction.
Contact your favorite Absolute Mortgage Advisor or visit us at www.absolutemortgage.com for more information.