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The strongest position to be in when purchasing a home is to be
Pre-Approved. As a potential buyer competing for a property,
you'll have a better chance of getting your offer accepted by being as prepared
as possible. Consider the following levels of home buyers:
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Neither pre-qualified nor pre-approved
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Pre-qualified
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Pre-approved
The benefits available at each level can be easily understood when viewed from
the seller's perspective. Imagine you're a seller in receipt of multiple offers
to purchase your property. A complete stranger (buyer) is asking you to take
your property off the market for at least the next two to three weeks while
they apply for a loan. As the seller, let’s consider the type of buyer you'd
prefer to deal with.
Neither pre-qualified nor pre-approved
This buyer provides no evidence that they can afford to purchase your property.
You may wonder how serious they are since they're not at least pre-qualified.
Pre-qualified
This buyer has met with a mortgage broker (or lender) and discussed their
situation. The buyer has informed the broker regarding their income, expenses,
assets and liabilities. The buyer provided you with the broker’s opinion of
what the buyer can afford.
Pre-approved
This buyer has provided a broker written evidence of income, expenses, assets,
liabilities and credit. As a result, much of the paperwork for this buyer's
loan has been completed. This buyer will probably be able to close quickly.
They provide you with a letter (pre-approval certificate) from the broker.
You're as certain as possible that this buyer can close.
As a potential buyer, you can see that being pre-approved will give you the best
chance of getting your offer accepted. This is critical in a competitive
situation and puts you in a much stronger position when negotiating price.
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Be sure to compare the total cost, not just rate, when comparing loans.
While the rate is important, consider the total cost of your loan including the
APR, title fees, origination points, etc. keeping in mind the amount of time
you plan to keep the loan or house. A professional broker should be able to
provide you with a complete analysis taking all of these important factors into
consideration. This will allow you to see several loan programs side by side;
providing just the information you need to make an informed decision.
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Make sure you receive a Good Faith Estimate and Truth in Lending.
This is a written statement of fees associated with the transaction and the law
states that you must receive a Good Faith Estimate and Truth in Lending from
any Lender or Broker. Keep in mind APR’s and Good Faith Estimates can be
calculated differently across lenders or brokers; therefore, this does not
eliminate the need for a total cost analysis.
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Get the rate lock in writing.
When you have locked your interest rate, be sure to get in writing the details
of the lock.
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When buying a home get a professional inspection.
Unless you're buying a new home with warranties on most equipment, it's highly
recommended that you get property, roof and termite inspections. This way
you'll know what you are buying. Inspection reports are great negotiating tools
when asking the seller to make needed repairs. When a professional inspector
recommends that certain repairs be done, the seller is more likely to agree to
do them. If the seller agrees to make repairs, have your inspector verify that
they are done prior to close of escrow.
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Be sure to shop for home insurance before you are ready to close.
Start shopping for insurance as soon as you have an accepted offer. Many buyers
wait until the last minute to get insurance and do not have time to shop
around.
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Allow for a few extra days in the transaction.
While most real estate transactions close on time, there are times when
transactions are delayed. A professional broker will work closely with you
defining the timeline and keeping you informed throughout the process. By
allowing yourself a few extra days and working with a broker that keeps all
parties informed, you will help ensure a smooth closing.
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Consult with your broker before making any major purchases during the loan
process. Remember that your loan approval is based on your total
debt compared to your total income. Adding any debt during the loan process can
impact this and also may adversely affect your credit, putting your loan at
risk.
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