The Importance of Getting a Solid Preapproval from a Lender

I wanted to post a few words concerning the importance of getting a rock-solid preapproval from a reputable lender if you are a serious home buyer in this market. A few of my buyer clients recently struggled getting their loans approved, which put the success of the home purchase in jeopardy. And this, after getting a so-called “preapproval” from their lender. The problem? The lenders sometimes rush through the preapproval process, over-looking important information about the buyer’s financial situation, which could lead to problems when it comes time to remove your loan contingency under the contract.

Buyers remember, once you find the home of your dreams and make an offer to purchase that home, in most cases in California, you have only 17 days to get your final loan approval and remove your loan contingency, essentially, telling the home seller that you are a qualified buyer and are moving forward with the transaction. Once you remove your loan contingency, you risk losing your deposit if you cancel because the lender finds problems later and does not approve your loan.

Lesson: there is a huge difference between getting an initial loan preapproval and getting a final loan approval. Many lenders and mortgage brokers use different standards for the 2 different types of approvals and this can lead to some serious stress, at best, and losing your dream home, at worst. The best thing a home buyer can do is to make sure the preapproval is a real approval. If the lender does not take a full application, run your credit, collect tax returns, W2 statements and bank statements, then there is a good chance the preapproval is not that reliable. Even though buyers find the delivery of all this paperwork tedious and annoying, it is necessary in order to get a solid loan preapproval. Once you have it, you can make your offer confidently, which will also give you and your REALTOR more flexibility to negotiate the deal you really want from a position of strength. Otherwise, without this, you will be scrambling, maybe even looking for a second lender at the last minute and asking the seller for an extension; the opposite of negotiating from a position of strength.

If you are thinking of buying a home this year, start the process by talking with a few lenders and getting a real preapproval. There is plenty of time to do the fun stuff like looking online at listings, driving around neighborhoods, going to open houses, etc.