The nature of the real estate market remains competitive and active, mainly due to the limited number of units and high demand. Many prospective buyers are seeking homes and will take any measure and assume any responsibility to stand out and receive a loan to purchase a house. Despite the fluctuating state of home prices, which tend to rise, homeownership remains a competitive market. As of the fourth quarter of 2018, the average price for a single-family home in Seattle has gone down to $753,315 and the market is projected to see a slowdown during the winter months, which makes it a great opportunity for prospective buyers that want to take advantage.
If you are entertaining the idea of entering the housing market, you should strongly consider getting a pre-approval for a home loan. The benefits of obtaining your pre-approval will immediately place you on the same level as the competition. In fact, by obtaining pre-approval, you will have an advantage over many prospective homeowners who might rush into the market. Not only can you reassure lenders and sellers that you are a dependable borrower and buyer, you can also learn more about the home buying process in general.
As you prepare for your pre-approval, make sure you check your credit score and your credit report. You want to make sure you make a great first impression with a respectable score and learn about the types of rates and loans that you can currently qualify for. In addition, this gives you the chance to improve your credit, if you want better loan and rate deals.
What Is Mortgage Pre-Approval?
Before discussing how a mortgage pre-approval will ensure your success in buying a home in Seattle, you must first understand the basics of the process. The procedures you will follow for pre-approval will differ depending on the lender you choose to work with. Generally, during pre-approval, the lender will investigate various parts of your personal and financial information, such as your credit report and your income. If you meet the requirements, the lender will grant you a pre-approved mortgage loan, which includes a pre-approval letter that says the loan will reach approval when you make an offer on a home and submit the documents corresponding to the offer.
When you first seek pre-approval for a home loan, you will need to bring specific documents to your meeting with the lender.
- Income: You must provide proof of income that shows the loan officer you are working with what you are earning and if it will suffice to afford the loan. These documents include recent pay stubs that display both regular income and year-to-date income, W-2 statements from the past two years, tax returns from the past two years, and evidence of additional income, such as bonuses, second jobs, or Social Security payments.
- Assets: The lender will want to see other financial assets that are unrelated to your income, such as your cash reserve in the bank, investments, or gift funds from family to assist you. You can submit proof of these assets via bank statements, investment statements, and gift letters, respectively. The lender uses the assets to ensure you can make down payments and closing costs.
- Credit score: You may not need to bring this requirement since most loan officers can pull this information up on their own. Lenders usually require a credit with a FICO score of 620 for most conventional loans, with the lowest interest rates going to higher scores. If you have a poor credit score, the loan officer will still work with you. However, he or she will suggest methods to improve your score and you might make higher down payments.
- Employment verification: The loan officer will require additional information besides income to confirm your solid employment history and your present employment status. Provide the contact information of your current employer, plus previous employers if you just started your current job.
- Other personal information: You must bring additional information with you, such as your driver’s license or passport, as well as your Social Security number (SSN). Most of this information is just to verify your identity, with the SSN for a credit check, if the lender is not able to perform one immediately. Additionally, the lender may request other information, so prepare to deliver the necessary documents as soon as you can.
Once you submit your information to the lender, you will likely have to wait for a variable time period. You will usually wait between two weeks and a month.
Afterwards, you will have to go through the three main steps of the pre-approval process.
- Pre-qualification: This is an informal interview with a professional where you both discuss your finances, specifically your assets, income, and expenses. This process can inform you of the range you can afford. Contrary to popular belief, this process is not the same as pre-approval and unlike the old days, a pre-qualification will not be enough to get an offer accepted on a home.
- Pre-approval: You will complete a full loan application and provide the necessary documentation to verify your income, assets, and credit. After a thorough review, the lender will issue a pre-approval letter. There is no set time frame a pre-approval is valid for. Documents such as pay stubs and bank statements need to be updated after 30 days and credit is usually valid for 90 days.
- Loan Commitment: Once you have a property under contract your file along with a title policy and appraisal will be submitted to underwriting. Once an underwriter signs off on everything you will receive final loan approval and sign your final loan documents.
Benefits of Mortgage Pre-Approval
If you went through the process for a pre-approval for a home loan, you are ready to enjoy the privileges that come with the process.
- Preparation: The pre-approval process already prepares you on important aspects of buying a home, such as the role of your credit score and income, your price range, and other aspects. When you finally have the time to shop around for a home with your pre-approval loan, you will have a better idea of what you can and cannot afford and search for homes that are more realistic to your budget. You can also plan your monthly payments ahead of time and choose whether to increase or decrease your monthly payments or your down payment.
- Improved bargaining and negotiating power: Due to the competitive nature of the Seattle real estate market, sellers are turning down multiple buyers on a regular basis, mostly because they lack evidence that they are serious about purchasing a home. By including a pre-approval letter in your purchase offer, you are demonstrating that you are committed to buying the seller’s home and that you are able to receive a mortgage loan. A seller is more likely to take your offer seriously and consider you for the home.
- Easier time finding a real estate agent: If you are a pre-approved borrower, you are more likely to find a qualified real estate agent to work with. Real estate agents would like to avoid working with under-qualified clients who might waste their time and resources. With your pre-approval letter, the agent will believe you are a serious future owner and will likely have a greater chance at getting a loan approval.
- Assistance for self-employed and commission-based employees: The pre-approval process is particularly helpful towards self-employed and commission-based buyers. Before, some lenders would allow these borrowers to obtain no-documentation loans, which allow the buyers the opportunity to choose a home without submitting all the information required by lenders these days. Now, self-employed people must provide proof of tax returns.
- Efficient house-hunting process: Being pre-approved for a loan means you can conduct the search for your future house in a more efficient manner. Not only can you cut to the chase with homes around your price range, but you can reach shorter closings as well. Since the pre-approval process allowed you to complete most of the necessary background checks, you are more likely to secure a faster closing. Just keep in mind that a pre-approval loan is not necessarily a final loan, and that closing proceedings are unpredictable and can slow down for a variety of reasons.
By taking the time to get a pre-approval for a home loan, you are taking a step that will increase your success in purchasing the right home for you. Not only will you gain the trust of your loan officer and the seller of your home, but you will also learn more about the housing market and how to become an ideal buyer. Applying for pre-approval allows you to enter the competitive market with enough preparation, experience, and benefits that will boost your home buying experience.
Miscellaneous Tips About Pre-Approvals
As a future home buyer looking into getting a pre-approval, you obviously value being well prepared and informed in your home buying process. In that case, here are a few assorted pointers that might not be obvious to most, and that could cause a bump in your plans.
Don’t let these pre-approval conditions catch you off guard.
- Change in financial circumstances: Any significant changes to your financial situation will affect the integrity of your pre-approval. This can mean changing or losing a job, taking out a new loan or credit card, or spending a significant amount of your proposed deposit, even for emergency reasons. Remember to keep your credit score consistent and keep paying your bills. Any disruption in your financial records will compromise you lender’s decision to pre-approve you
- Expiry. Pre-approval documents expire: While you will not have an endless amount of time after receiving a pre-approval to go through with taking out a loan updating your documentation is not a difficult thing to do. It’s better to get pre-approved too early than too late and miss out on your dream home.
- Varying interest rates: Interest rates are not likely to rise or fall significantly in a few weeks, but can do so over the course of months. A change in interest rates could cause you to lose your pre-approval, or simply decrease the highest amount you were pre-approved to borrow before the rates dropped. Keeping an eye on rates through our Interest Rate Quote tool is easy and lets you know if anything significant has changed.
- Property denial: As mentioned briefly earlier, the lender must approve you and the property you plan to buy. Since lenders usually give pre-approvals before a borrower chooses a property, it is possible for them to revoke the approval if the borrower chooses an unsatisfactory property. If you or your Realtor have concerns about the condition of the property or if you property is unusual in any way it is a good idea to let your Loan Officer know ahead of time so they can bring up any red flags before you spend too much time negotiating on a property.
- Not a Guarantee: As you can see from the above conditions, and for other reasons not listed here, a pre-approval is not a guarantee for a loan. The only guarantee is actually closing the sale. Discuss possible changes that could happen between pre-approval and closing with your lender to get an idea of safe changes and those that will cause you to lose out.
Are you looking to enter the Seattle house market? Are you ready to enjoy all the benefits that a pre-approval for a home loan can offer you? If so, contact Sammamish Mortgage today. Our professional loan officers will help you receive pre-approval and purchase your desired house in a very competitive market.