Can you make an offer on your next house without a mortgage preapproval? Yes, but your offer is likely to stall if you don’t back it up. In today’s fast-paced real estate market, sellers are often presented with multiple offers. They are far more likely to choose an offer with solid, documented financing than one without. In other words: Get preapproved before you make an offer. Some sellers may choose not to entertain any offers unless they come with a preapproval letter. Even cash buyers present proof of funds when their Realtor puts together a purchase offer.
Hopefully, you’re convinced that preapproval is essential for home buyers. Smart shoppers take it one step further and seek preapproval before even looking at homes. There is no good reason to see homes before securing your financing, and plenty of reasons for seeking preapproval. When you’re preapproved, you know what you can afford, what your payment might be, and what you need to do to ensure final underwriting approval. Sellers will give your offer more consideration when the financing is secure. Plus, Ruoff Mortgage makes preapproval easy. Here’s what to expect:
The Starting Line
Start your engines, it’s almost time to shop! Homebuyers can apply for mortgage preapproval online or at a branch. Either way, you’ll be connected with a top-notch loan officer who can guide you from start to finish.
Hitting the track without a preapproval could cause you to stall during the negotiating process. Start strong and finish strong by having your finances ready before you make your first offer. If possible, get preapproved before you start shopping.
The Green Flag
At your branch appointment or online, your loan application follows the same process. First, there will be many questions. The loan team has to follow a specific set of application guidelines to get a preapproval for you. The basic application process involves questions about your current and former housing, employment status, income, assets, and credit history. You may be asked to provide some preliminary documentation. Requirements can vary based on the loan products that fit you best. For example, a conventional loan that adheres to Federal National Mortgage Association (FNMA) standards will have different requirements from an FHA loan guaranteed by the United States Department of Housing and Urban Development (HUD).
Once you’re preapproved, your loan officer will issue a preapproval letter. This letter is like a “green flag” that tells sellers you’re financially in the running for a new home.
The Caution Flag
Preapprovals don’t last forever. If your home search outlasts your preapproval window, it may be time to slow down and reconnect with your loan officer. Typically, your lender will need updated documentation from you and permission to do another credit pull. Also, the preapproval window is NOT the time to make a major purchase or take on new debt. If either of these things happens, or if your employment status changes, notify your loan officer right away.
If your preapproval application was rejected, do not despair! It just means you need to get your financial house in order before you can buy a real house. Your loan officer is there to help and will be ready to try again as soon as you are. Common reasons that a preapproval is declined are low credit scores, too much revolving debt, and unpaid judgments or child support. It may take time to bring these items up and current, but the financial discipline involved in doing so will serve you well as a homeowner.
A word on preapprovals and credit quality: It’s a common myth that applying for a mortgage will tank your credit score. The reality is that going through the preapproval process is generally helpful to your finances. See the Ruoff Porch Archive for more on this.
The Checkered Flag
Only the best offer comes in first. Housing is a unique product in that its scarce, immobile, and consistently appreciates in value. Two offers, no matter how fantastic each one is, will not win the chance to purchase the same piece of property. Only one buyer can come in first. The negotiating prowess of preapproval is essential if you want to come in under the checkered flag.