Going through the pre-approval process is more important than ever to both you and your Realtor, but the actual term ‘pre-approval’ is potentially misleading.
You may be pre-approved for a certain mortgage amount, however there are still a number of variables that can enter the picture once an offer is accepted. That’s why it is imperative that one always include a clause in the offer along the lines of ‘subject to receiving and approving financing’. (There are variations to be discussed around the specific wording.)
Often clients are reluctant to write the initial offer on a property without feeling like they are 100% pre-approved.
An understandable desire. The risk, though, is that some may falsely believe that they have a guarantee of financing. They don't.
A lender must review all related documents – not just those of the clients, but also those from the appraiser and the Realtor – as the property itself must meet certain standards and guidelines.
The pre-approval process should be considered a pre-screening – a first step only.
It does involve review and analysis of the client's current credit report; it should also include a list for the client of all documents that will be required in the event that an offer is written and accepted. Clients should also come away from this initial process with a clear understanding of the maximum mortgage amount they qualify for, along with the various related costs involved in their specific real estate transaction. Equally important: with the completed application your broker is able to lock in rates for up to 120 days.
Why won’t a lender fully review and underwrite a pre-approval?
- Lenders do not have the staff resources to review ‘maybe’ applications – they have a hard enough time keeping up with ‘live’ transactions.
- The job you have today may well not be the job you have by the time you write your offer.