In the last five years, climbing housing prices and rising federal interest rates have fueled a housing market gold rush as more people race to buy homes while they still can. With homebuyer confidence at an all-time high and the number of available properties steadily declining, bidding wars have become a common part of the homebuying process. Today’s sellers are flush with offers and have the luxury of being more discerning when selling.
Standing Out in a Seller’s Market
How does a seller differentiate and ultimately choose one offer over a handful of others? First and foremost, sellers want assurance that a potential buyer is truly interested and has the means and track record to follow through on an offer. Earning pre-approval for a mortgage emerged as a way for sellers to gain this assurance prior to taking their home off the market, and offered buyers a competitive advantage in bidding wars.
Or so they thought. In years past, unassuming sellers took pre-approval at face value and assumed it meant exactly what it sounded like—i.e., that a potential buyer had passed the loan approval process and was guaranteed a loan upon application. To their collective surprise and dismay, what many companies continue to advertise as pre-approval is actually a basic form of pre-pre-approval, or pre-qualification. In other words, earning pre-approval doesn’t mean that you’ve been approved for a loan. It simply means that you’ve been qualified to submit to a more formal and thorough loan approval process.
Today’s sellers and agents have learned from the mishaps of those that came before them, and are much savvier when it comes to differentiating between pre-approvals and full pre-approvals. In 2018, a bid that includes a standard pre-approval won’t stand a chance against a similar offer that has earned full pre-approval. Yet, hopeful homebuyers continue to fall prey to the misleading language of pre-approval programs and are left wondering why they’re consistently losing purchasing opportunities.
The Difference Between Pre-Approval and Full Pre-Approval
On a basic level, pre-approval simply means that you’ve been pre-qualified for loan consideration. You must still pass a more thorough loan approval process. Because it’s a precursor to full pre-approval, pre-approval often doesn’t involve formal or in-depth verification of an applicant’s background, credit history, or funds, and doesn’t guarantee a lending commitment. In contrast, earning full pre-approval means that, in addition to being properly vetted, a loan has been processed, underwritten, and awarded formal commitment from a lender.
The Benefits of Full Pre-Approval
Gaining full pre-approval allows you to approach a seller with guaranteed financing, thus verifying your interest and boosting their confidence in your buying ability. In addition, full pre-approval is more appealing to sellers because it ensures a swifter closing—often in just two weeks time—because the loan has already been approved and simply needs to be submitted for closing.
Along with moving your offer to the top of the pile, full pre-approval gives you more negotiating power based on the hard numbers you’ve been quoted by the lender. If you know what a mortgage will cost you in the short and long term, it’s easier to determine what to focus your negotiation efforts on because you know how much leeway you have.
How Our Process Is Unique
Most full pre-approval programs require that you have a specific property in mind before applying for full pre-approval. We aim to make it easier for our clients to stand out in an oversaturated marketplace by providing full credit approval to underwrite a loan before you’ve zeroed in on a specific property. Getting this full pre-approval early in your search will allow you to act swiftly and get ahead of the competition once you locate your dream home.
Our Full Pre-Approval Process Includes the Following Steps:
- We digitally verify your income, credit, assets, and other requisite information to pre-approve you for a loan.
- The loan is fully disclosed, so you can discuss the terms and review your lending options to determine the best fit given your unique financial goals and situation.
- The loan is processed.
- The loan is underwritten.
- A commitment letter is issued.
- The property to purchase is identified.
- The loan is re-disclosed and re-approved.
- The loan is sent to closing.
In addition to providing full pre-approval, the Elmendorf team will actively advocate on your behalf by calling an agent or seller to communicate your pre-approval status and differentiate you from other potential buyers on their radar.
If you want to learn more about what full pre-approval entails and discuss your eligibility with a Elmendorf loan expert, simply schedule a free mortgage analysis to learn more.