Preapproval of mortgage loans is something that we haven’t always done, but it’s becoming critical these days. In the old days — and it pains me to admit that I remember this from my own experience — buyers generally did not apply for a mortgage loan until after negotiations with the seller were complete. Why bother the lender until we know what the collateral is going be, eh?
As the real estate industry matured and changed over the years, the “smart” buyers started getting pre-qualified for their mortgages. This development served two purposes. First, it helped nailed down what the buyer’s true financial picture might be. Before the house-hunting phase even began, we brokers had a much better feel for what the upper priced range might be. Secondly, getting the buyer pre-qualified helped the seller feel better about accepting an offer, and taking the property off the market. Remember from our discussion on negotiation that when an offer is presented, the buyer is the product. Having that pre-qualification helped immensely with the packaging of the buyer.
As with most things that just make sense, what started out as something the only the cool kids did became the standard for the industry. Soon everyone was doing it. Brokers advised their agents to not even think about showing houses until the buyer was prequalified. Sellers began to routinely demand that offers be accompanied by “pre-qual” letters from lenders. It became all so passe.
What were the cool kids to do?
What they always do: take it up a notch.
If everyone else was getting prequalified, the next thing to do was get pre-approved.
That’s exactly what it sounds like. Instead of just getting a lender to crunch your numbers and make sure you were qualified for a mortgage, and would likely get approved once the loan process was underway, with preapproval, the buyer and the lender work the entire process of getting the loan fully approved, subject only to making sure whatever property is finally chosen is acceptable.
We’re now at the stage where pre-approvals are becoming more the norm, especially in a strong market like Denver. Sellers are simply unwilling to take their houses off the market without getting as much proof as they can that the buyer has the financial means to close the deal. They want to see that the buyer’s numbers have been verified, and the loan underwriter agrees it’s all a “go.”
It’s all part of packaging the buyer, and it makes a lot of sense. So much sense, in fact, that it is not uncommon for sellers to demand a pre-approval with any offer submitted. Soon — very soon — getting a mortgage loan preapproval will simply be standard operating procedure, and we’ll all wonder why it wasn’t always done that way.
So what’s next? Take your pick.
Yeah. You should probably do at least one of those things right now.