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Pre-Approvals
Why Get a Pre Approval?
Most
home buyers know they should get a mortgage pre-approval letter
from a lender before they begin seriously shopping for a home.
The reasons for this advice aren't always clear, and buyers
sometimes are dismayed by the amount of paperwork involved.
Here is some of the reasoning behind the advice:
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A
pre-approval letter is more reliable than a pre-qualification
letter. Getting a pre-qualification is easy. You just call
a mortgage broker or lender, provide some basic financial
information, then wait a few minutes for the letter to come
through your fax machine. Getting a "pre-qual"
from a Web site is just as easy. Enter some information,
click "submit" and there you go. A pre-approval
letter, on the other hand, involves verification of all
the information, rather than taking your word on faith,
the lender will ask for your documentation to confirm your
employment, the source of your down payment and other aspects
of your financial circumstances. Yes, a pre-approval is
more time-consuming than a pre-qualification but the benefits
are defiantly worth it.
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You'll
know how much money you can qualify to borrow. Most home
buyers have a general idea of how much they would feel comfortable
paying every month on their mortgage. However, there's no
quick-and-easy way to translate that monthly payment into
a specific maximum mortgage amount because other factors,
down payment percentage, mortgage insurance, property taxes,
adjustable interest rates and so on, are all part of the
calculation. And, you might not be qualified to borrow as
much as you think you should be able to borrow, depending
on your income, your debts and your credit history.
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You'll
have more leverage in negotiations with the seller. Home
Sellers often prefer to negotiate with pre-approved buyers
because the sellers know such buyers are financially qualified
to obtain the financing they need to close the loan transaction.
A pre-approval letter is an especially favorable to a seller,
in a close multiple offer situation. And, you might feel
more confident about making an offer with a pre-approval
letter in hand and the knowledge that you'll be able to
obtain a loan for the mortgage.
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Your
real estate agent will work harder on your behalf. A pre-approval
letter signals to your real estate agent that you're a well-qualified
buyer who is serious about purchasing a home. (anyone who
has ever dealt with a Realtor knows that most Realtors will
not really start to house hunt seriously fro you until you
have this letter). The increased likelihood of a closed
sale, and a commission, will naturally motivate your agent
to devote more time and energy to you.
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