Editor’s Note: This week, we’re publishing a series of blogs to help home buyers and agents alike make their offers stand out in today's ultracompetitive real estate market. Click here to read Part 1 on assembling your A-Team, and be sure to keep an eye on our blog later this week for Part 3.
The state of the housing market is such that it’s a frustrating and seemingly never-ending process – but it doesn’t have to be. And as the market begins to cool ever so slightly (especially in the hottest coastal markets that saw the steepest hikes like Boston), one thing has become clear: now is the time to strike and make your winning offer.
But in order to win, you need to make your offer stand out, and one of the most important steps in doing so is understanding your finances. The road to obtaining a mortgage can be complicated and bumpy, so simply being prequalified or pre-approved to receive financing isn’t always enough to stand out; the real magic lies in the power your financing can emanate and the confidence it instills in a seller and their agent.
Here’s how to create that leg up on your competition and make your home offer stand out from the pack:
Know Your Numbers
In today's market, it has never been more important to be pre-approved for a mortgage before you start looking at homes -- either online, virtually, or in person. There are seemingly endless ways you can start looking at home listings, but to really get yourself in position to make an offer, you have to have a pre-approval letter from a lender.
There are also different levels of pre-approvals. If you’ve ventured into the world of home buying, you’ve probably heard the term "pre-qualification."
In a pre-qualification, you’ll work with a bank or lender, give them your basic information and estimated debts, however it's unlikely they'll pull your credit report. From there, they can estimate your financial situation to tell you whether it’s likely you would qualify for a mortgage, and if so, how much you would be approved to spend.
They can also give you estimated price ranges for monthly payments at different price levels for a home. This is especially important, because while the bank or lender will tell you what you’re qualified and able to spend, that number won’t necessarily reflect what you’re comfortable spending.
The key here is that you’re getting information directly from your bank or lending institution and will have a clear understanding of the home price range you are shopping in and what your home will cost on a monthly basis once you’ve purchased it.
Nearly all home sellers these days will require a more substantial financial prerequisite than a pre-qualification. That’s where pre-approvals come into play.
While pre-qualifications are great for informational purposes of the buyer, they’re the lowest level of approval and do not provide quite enough information for a seller to select an offer. The next step up, and far more important, is a pre-approval.
During a pre-approval, you’ll submit all your personal and financial information during your application, but your bank or lender will conduct a “hard” credit check that gives them the full picture of your financial situation. This information is typically reviewed in an automated underwriting system which determines an approval. After this review, approved borrowers are generally given a price up to which they can apply to borrow for their mortgage and expect to be approved. This letter of pre-approval is included in formal offers to purchase a home and is an integral part of making your offer stand out and get accepted, as it shows a seller how strong of a buyer you are and that your financial information has been validated.
Expedited Closing: Fast-Track Approval
While a pre-approval is the standard and a minimum financial prerequisite needed for a seller to consider your formal offer to buy a home, there is a way to take it one step further: an expedited closing with what our friends at CrossCountry Mortgage call the fast-track approval.
Once your offer to purchase a home is accepted, the bank gets to work on underwriting your loan, which simply means they do a thorough review of your income, assets, and debts to verify everything before approving the loan. This process can take several weeks – standard is 60 days, though many lending institutions are able to push for a 28-day closing – and it’s not uncommon for a bank or lender to have questions or face roadblocks along the way. These potential issues could extend the time it takes to close on a property, or even cause a mortgage application to be denied.
That’s where CrossCountry’s fast-track approval comes in handy.
“In the fast-track approval, we're actually submitting your mortgage application to an underwriter so that a human being is able to review the information, eliminate any potential hurdles, and alleviate any question marks up front,” Chris Devin, Senior Vice President at CrossCountry Mortgage, explained. “So when it comes time to make an offer, that commitment that you have is second-best only to cash. Cash is king, but a fast-track approval is going to put you right there in position to win that offer.”