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Why Pre-qualifying for a Mortgage Matters

We advise every buyer we work with to get pre-qualified for a mortgage (assuming you are not paying cash). The New York Times, recently covered the issued and reinforced the benefits of a strong pre-qualification letter. Monticello recommends only working with mortgage lenders who complete a comprehensive pre-qualification process that goes beyond just reviewing the buyer’s credit. The NYT wrote:

Mortgage Master, a direct lender in Walpole, Mass., has also begun offering a level of preapproval that goes beyond a credit check. The lender verifies the same income and asset information upfront that is normally verified for a loan application. The intent is to put the proposed borrower in the same position as a cash buyer, said Paul Anastos, the president of Mortgage Master.

Pre-qualifying for a mortgage has many benefits. in addition to those highlighted by the New York Times.

  1. Even for an experienced buyer, its helpful for you to know how much or how little you’ll need for a downpayment, what are the closing costs, and how much cash you’ll need for closing. 
  2. Credit scores and your credit report, even for the stellar client, sometime contain errors, misinformation, or surprises. Running your credit early not only will give you a rock-solid pre-qualification letter, but it will ensure your credit is clean and pretty. Catching a mistake at the time of your offer could set you back several months and put your purchase contract in danger.
  3. Depending on the mortgage product, your interest rates and personal mortgage insurance with change. As your product changes, your monthly payment may fluctuate. Its important to nail down not only your up front cash, but also your projected interest rate and monthly payment to make sure the purchase is financially sound.
  4. Strong pre-qualification letters make a difference to the seller! This cannot be overstated especially in the era of multiple offers and cash buyers. The only way to assure the seller you’re qualified is a with a pre-qualification letter (based upon a review of your income, debt, and merged credit file) from a reputable and preferably local bank. We’ve seen too many big banks hand out mortgage approval letters, which weren’t worth the paper they were printed on.
  5. It makes a difference whether you’re buying as a primary home, second home, or investment property. Even experienced home owners don’t always understand the nuisances of mortgages for second home purchases or investment products, they are not the same products as a primary home mortgage.

So if you’re going to get a mortgage, or maybe not completely sure whether you’re paying cash for your purchase, pre-qualifying is always the first step. As the NYT noted:

Unlike a preapproval for a certain loan amount, usually based on a check of a borrower’s credit history, pre-underwriting involves a thorough review of all the documentation required for a formal approval, said Peter Grabel, a senior loan originator.