Often we work with home buyers who are hesitant to get a mortgage loan pre-approval letter from a lender. The reasons buyers have include:
- I don’t want a hit on my credit score from the inquiry.
- I’ll do that when I find the home I want to buy.
- I know that I’ll be approved. My credit score is…
Credit Score Impact
According to the credit score authority, Fair Isaac (FICO®), “In general, credit inquiries have a small impact on your FICO® Scores. For most people, one additional credit inquiry will take less than five points off their FICO® Scores“. And, “If your FICO Scores find <rate shopping inquiries>, your scores will consider inquiries that fall in a typical shopping period as just one inquiry”.
Learn more about how credit inquiries affect your FICO® Score.
When I Find the Right Home
Here in Central Florida, we are in a very strong sellers’ market for single family homes, especially three and four bedroom. Homes that are priced right and in the best condition go under contract quickly. You may find that right home on a Friday evening or Sunday afternoon and want to make an offer. Even during the week, it could take a lender up to a business day to get a fully documented and underwritten (the one with the most credence) pre-approval letter in your hands. Listing agents and home sellers won’t consider your offer without it and by the time you get one in your hands, the home has gone to another buyer.
We have seen an increase in sellers approving showing requests to qualified buyers only who are ready to write an offer. They want to reduce how often they have to get the home ready to show, take their family and dogs (very often) out of the house, and with our current COVID-19 situation, sellers want to minimize their risk of getting sick.
I Know I Will Be Approved
That’s great! The listing agent and seller of the home you want to purchase don’t know that. A solid pre-approval letter makes everything from initial showing request, to offer and negotiations much easier and faster.
Buyer sometimes get blindsided by how entries – sometimes unexpected – on one or more of their credit reports, current debt-to-income, and other factors affects their loan approval and how much they can be approved for.
Factors in Calculating Your Home Purchase Budget
While online mortgage calculators are great, they are basic, taking only principle and interest into account accurately. BankRate.com’s calculator includes lines for property taxes and homeowner’s insurance. However, it’s a guess based on average numbers. Homeowners’ association or condominium dues are not factored in as they can vary widely. A buyer’s credit score can affect the interest rate and debt-to-income ratio can affect how much per month can be budgeted for principle, interest, taxes, insurance, and HOA dues. If you are putting down less than 20%, add private mortgage insurance to the mix. A licensed, mortgage loan officer can tailor these numbers specific to you and your financial situation.
Benefits of Loan Pre-Approval
Elizabeth Weintraub has detailed five more benefits to home buyers for getting that pre-approval taken care of as the essential, first step for home buyers.
There are a plethora of benefits for home buyers in obtaining a documented and underwritten mortgage loan pre-approval letter from a lender of their choice as the first step in the home buying process. There should never be a cost or obligation. The 15 – 30 minutes it takes to get done is well worth the time and expense saved.