Mortgage Pre-Approval More Important than Ever

If you are in the market to buy a home right now I don’t need to tell you how tough it is out there – you know.  For those of you not actively searching for a home to buy, this article published by the Denver Post may give you some insight as to what the Denver metro housing situation is like right now.

Why is the market so tough?  Low inventory.  What does that even mean?  Just like a grocery store with low inventory on bananas, it means they don’t have many to sell, right?  Well, in the housing side of things low inventory means there are less homes for sale than normal.  According to the Denver Post, “the inventory of homes available for sale remains at a third of historical levels.”

Impact on You

What does this low inventory problem mean for you as an active or potential home buyer?  It means that sellers are going to be looking at you closer than they have in the past.

Put yourself in their shoes for a moment – pretend you are a seller rather than a buyer.  You put your home on the market and you get a few offers from buyers interested in your home.  They are all good, probably even over asking price.  How do you determine which offer to choose?  Do you go with the highest offer?  Do you go with the quickest close date?  How do you decide?

Alright, you are a buyer again.  What can you do to set yourself apart from your competition?  Yep, those other buyers are now your competition.  How are you going to get the attention of the seller and make them want to select your offer over another one?

Your Team

The first thing I would suggest in making sure that you have a fighting chance in this market is to select the right team.  Your team consists, primarily, of your real estate agent and mortgage professional.

Real Estate and Mortgage professionals run into each other a lot – it is a small world.  When their paths cross one of three things happens.  The interaction is good, bad or neutral.

My goal is to have as many good interactions as possible to create a reputation that works for you!  My guess is that is the case for most real estate and mortgage professionals but it sounds much easier than it is.  These interactions include reaching out to other agents when submitting offers or working through a transaction together.  It includes how well you communicate and return phone calls.  The reputation of these professionals is based on meeting contract deadlines and closing on time.  It also depends on the number of interactions.  If you have the opportunity to interact with someone just once you may not remember that interaction but if, instead, you interact 10 or 20 times you start to get a feel for how that person works.

Selecting a full-time real estate agent and mortgage lender who are familiar with, and have recently worked in, this low inventory market is critical to your success.  Check them out online to determine what reviews they have from past customers or other professionals.  Their reputation will become your reputation as they represent you when submitting an offer to a seller who’s agent’s job is to make sure that you will perform on the offer you are submitting.

Put in the Work Up Front

The last thing you want to do in today’s market is to shop for a home prior to figuring out how you will pay for it.  Do you have cash to buy a home?  I am guessing you don’t since you are reading this post on a site all about mortgage financing.

This means you need to figure out what you qualify for, or if you qualify.  The lender needs to be able to vouch for you.  Not just any lender, but a mortgage lender who has a great reputation and closes a lot of business.  Again, the more good interactions the better opportunity you have to get your offer accepted.

I have talked about the difference between a pre-qualification and a pre-approval and the Value of a REAL Pre-Approval in the past.  Getting a mortgage pre-approval is more important than ever.  In fact, I recently advised real estate agents to assess the quality of your pre-approval – How Pre-Approved is Your “Pre-Approved” Buyer?

To be 100% clear a pre-approval is better than a pre-qualification.  Sometimes those terms are confused and in case you didn’t take a minute to read those other articles I wanted to make sure that point was made.

Here is a snapshot of the pre-approval letters I provide for my customers when they are submitting an offer to a listing agent representing the seller:

This shows the seller you are serious.  You have made some big efforts to make sure that you can qualify and perform on the offer you are submitting to them.  Not all pre-approvals are considered equal.  Ok, put your seller hat back on.  Let’s say you get two offers on the home you are selling.  They are identical in every way, except the pre-approval letters.  One simply says they are pre-approved while the other shows everything the buyer has done to get pre-approved including all those items listed above.  Which would you choose?  I hope you said the second one.

Set yourself apart by doing the work up front.  Completing a full loan application, having your credit checked, providing all the crazy documentation that your loan officer needs to assess whether there are any issues in qualifying you for a mortgage.  Is it a pain in the @#%?  Sure.  But that is why you will be able to set yourself apart – because other buyers might not be willing to take these steps.

Take Advantage of the Market

After reading through this you might be thinking, “I would be crazy to buy in this market!”  In my opinion you would be crazy not to buy.  Use this market to your advantage.  Take the necessary steps to get a great team in place and a rock solid pre-approval to set yourself apart.  Make some offers (it might take a few times) and get a house under contract.  Close on that home and start to realize your home appreciating in value.  Simple economics says that when demand is high (trust me, it is high) and supply is low (the whole point of this post) prices go…up, up, up.