- When the home you want has multiple offers, you need every edge you can get to win the bid
- Avoid the disappointment of losing your dream home because of a “surprise” in underwriting
- Close the deal quickly after the offer is accepted. Maybe as little as two weeks.
Inventories of Available Homes for Sale Are Lowest in Three Years
According to Realtor.com: “December saw the largest year-over-year decline of housing inventory in almost three years with a dramatic 12 percent decline, pushing the number of homes for sale in the U.S. to the lowest level since January 2018 according to the December 2019 Housing Trends report released this week by realtor.com®.
“The significant inventory drop we saw in December is a harbinger of the continuing imbalance expected to plague this year’s markets, as the number of homes for sale are poised to reach historically low levels.”
LA.Curbed.com reports: “Homebuying in Los Angeles in 2020 is off to a busy start. Agents and real estate observers say that in the “lower” end of the market—where homes are priced below $1.5 million—the early action might be indicative of the year ahead.”
Zillow.com raw data shows inventories in December of 2019 at similar levels to 2018 which were historic lows.
Low Inventories Mean Multiple Offers on the Best Properties
Even if you’re not too picky, these kind of inventory numbers mean that even so-so homes are going to be quickly sold. But for the best homes in the best neighborhoods, you will see multiple offers, and commonly some of those will be all cash offers.
Why does that matter? If two bidders offer the same price, and one offer includes a mortgage approval contingency and one doesn’t, the seller is almost always going to accept the all cash offer. Wouldn’t you?
What Do You Do if You Don’t Have All Cash?
When a home catches your interest and you go visit the property, you can arrive with one of four approaches. You can tell the seller’s agent that a:
- Mortgage contingency will be required
- Mortgage contingency will be required but you have a pre-qualification letter from the lender
- Mortgage contingency will be required but you have a pre-approval letter from the lender
- You hae a pre-underwritten mortgage letter, therefore no mortgage contingency required.
For those who haven’t spoken with a mortgage lender like Bill Rayman prior to house shopping in Los Angeles or Orange County, they may find that real estate agents won’t even accept their offer without a pre-qualification letter from a lender. If they do accept the offer, the pre-approval letter will be much more likely to win a bid than a pre-qualification letter.
What Is the Difference Between a Pre-Approval and a Pre-Qualification Letter?
A definition from Investopedia.com says this about pre-qualification:
“Getting pre-qualified involves supplying a bank or lender with your overall financial picture, including your debt, income, and assets. The lender reviews everything and gives you an estimate of how much you can expect to borrow.
“Pre-qualification can be done over the phone or online, and there’s usually no cost involved. It’s quick, usually taking just one to three days to get a pre-qualification letter. Keep in mind that loan pre-qualification does not include an analysis of your credit report or an in-depth look at your ability to purchase a home. It’s based solely on the information you hand over to the lender, so it doesn’t mean much at all if you don’t provide accurate data.”
Forbes.com says this about Pre-Approval: “This document shows the seller the maximum amount that the bank is willing to loan you, provided you meet certain conditions like ensuring you have a stable financial history. It offers reassurance of your ability to get a loan, rather than a guarantee.”
At this stage, you have supplied most of the details about your financial situation, and the lender has reviewed it enough to make an excellent estimate of how much loan you can handle. But this letter does not guarantee that the lender will make the loan. They still need to do a detailed check of the validity of your information.
Pre-Underwriting Takes Two Extra Weeks in the Beginning, But You Get Those Two Weeks Back at the Closing
Here is a great description of the process in Neighborhoods.com:
“Pre-underwriting means that the lender will subject your loan application to a thorough review process before you enter into any sort of contract with a seller. Normally, underwriting takes place after you put in an offer and you’re under contract. Pre-underwriting speeds things up: a lender will have an underwriter review your financials before you put in an offer on a home, and you’ll be pushed all the way through to the loan fulfillment stage.
“Mortgage underwriters help the lender determine the risk of offering the loan to the buyer. They’re looking for potential discrepancies or issues in your financial, job, and mortgage or rental history that might make you a high-risk candidate. This is why some people might be pre-approved for a certain amount but don’t receive a loan because of something found during the underwriting process (Note: Your loan officer will work with you to make sure this doesn’t happen).
“A pre-approval is an indicator you’ll be given a mortgage up to a certain dollar amount, but a pre-underwriting is a guarantee.”
If you are going to need a mortgage in order to buy a home, you will need to go through underwriting. While unpleasant at times, like filling out your taxes, it has to be done. Even if you don’t end up needing a pre-underwritten approval letter to beat the competition for your new home purchase, there are multiple advantages to getting one, in any case.
- You find out exactly how much the lender will approve
- You avoid potential headaches during the escrow
- You don’t need a mortgage approval contingency
- You speed up the escrow process
- Escrow is often stressful. This reduces the stress by half
What Should You Do to Get a Pre-Underwritten Mortgage Approval Letter?
Bill Rayman is standing by right now to help you get your pre-underwriting done as quickly as possible so that you can start shopping for your new home. Bill has over a decade of experience in mortgage lending and will work with you to help find the perfect mortgage to fit your circumstances. Call Bill now at 424) 354-5325