Prequalifying

                 THE IMPORTANCE OF PREQUALIFYING

In the excitement of buying and selling a home, homeowners often overlook a very important first step – talking with their mortgage broker or banker and getting prequalified. This is something that should be done before you start to look at homes or list your home for sale. 

This is important information for BUYERS because: 

- if buying a new home, preapproval will ensure that you know up front what you can afford to pay for a home in terms of the purchase price, down payment, legal fees, and other closing costs. This will in turn let you know what price range you should be looking at when viewing properties. This is important information for your realtor because by knowing how much you can spend, he/she can ensure that the homes you look at are ones that not only meet your personal wish list but that also meet your financial reality.

- when it comes time to make an offer on a house, you will have a much stronger and more attractive offer for the seller to consider. Sellers want to know that you can afford to buy their house. They don’t want to negotiate a deal with a buyer,  have the house tied up while you satisfy the subjects, only to then have the deal fall apart because the banks says it is out of your price range. You will be able to negotiate more confidently and effectively knowing that you qualify for the mortgage needed to purchase the house.

- related to the above, if you are in a multiple offer situation, knowing that you are preapproved may make the difference in having your offer accepted over another buyer’s offer.

This is important information for SELLERS because: 

- if you have a mortgage on your home, you want to know any mortgage penalties you may be obligated to pay when you sell your home.

- if you are selling your home, you need to decide if you will be selling or buying first. Your decision may require you to get bridge financing, something you need to discuss with your financial advisor.

Both BUYERS and SELLERS benefit from being preapproved for a mortgage in that they are protected from short-term fluctuations in interest rates.  Most financial institutions will guarantee an interest rate for a specified period, typically 120 days, thereby protecting you against increases during that period. Should interest rates go down, you would pay the lower rate.

When you speak with your banker or mortgage broker regarding preapproval make sure that you are “solidly” preapproved. You should be asked to provide the following: 

- confirmation of your income
- proof of assets (what you have) and liabilities (what you owe)
- information regarding the size of your downpayment
- credit history.

The process of getting pre-approved should be done even if you are just thinking about buying a home. Getting preapproved is free and there is no obligation to purchase. And as I stated above, it ensures that you are looking at homes that you can afford. Then, should your dream home come on the market – you are ready to move on it.

I have worked with a number of different mortgage brokers and would be happy to provide you with some names should you require them.