PRE-APPROVED vs PRE- QUALIFIED

2-3-2008





The banking and mortgage lending rules have greatly changed in the past several months.

Buyers need to be prepared for a "thumbs down" on a loan application because of past credit problems, not sufficent money for a down payment and other underwriting issues.

Don't waste your time, the seller's tim , if after spending considerable effort, you find you are not qualified to purchase a home!


Interest rates may be low but the standards of obtaining a mortgage are higher. Much higher.




Before you begin home hunting be sure that you are "pre-qulaified," first. It will save you considrable effort.



There is a major difference bewtween a pre-qualification and pre-approval. A significant differance.


A pre-qualifiation, ' is an informal way to determine a price range that you may be able to afford.



A pre-approval is an actual bank committment to you in your home search and includes an analysis of your financial standing and a credit check.



This pre-approval is a powerul tool when you find a home you want to purchase and begin to negotiate.


Because the overall real estate market is in such turblent times most banks and financial institutions now requiring substantial down payments ( up to 30% for poor credit, etc) ; excellent credit, plus well documented sources of actual income!



The easy-go-lucky days of home financing are over! Anticipate a tightening of appraisal and home inspection standards. ( This always occurs when the horse has been stolen from the barn) .



Today we had some rather dismal news: Yahoo Finance , quoting Business Week On-line, has predicated that in some parts of the country home prices will probably fall another 25%.*



This, they state, will bring prices into line with the price levels of the year 2000. This news alone will tend to stall the already slowing sales.



Today's Boston Globe reported that some banks will require another 5% down on top of the 30% down payment for those with poor credit. This will occur in markets where home prices are declining.



For those with good credit, cash for down payments and closing, plus verifibable sources of income the going will not be difficult.



The best buyer, in today's market, is the all cash buyer, with no home to sell. These few and far between buyers will be able to act quickly. For all others anticipate much slower goings.


Being pre-approved will help.



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* When home values fall this much( 20%+) it creates a major headache for banks and borrowers. If a person purchased a house at $500,000. ( with $50,000 cash down) and financed $450,000 the house could be now worth -25% less or $400,000.


The bank is required to have an 80% Loan to Value(LTV) ratio which means the homeowner needs to pay any differential owed over the $400,000 new value, plus. OUCH!


This is what caused the problems in the 1980's. Let's hope that congress will resolve this quickly, if it can!