Pre-qualification on loans

[Cristine M.]

How important is it to be pre-qualified on a loan and/or preapproved for residential property deal (specifically single-family home)?

[Jim Blackburn]

@Cristine M.

Supposing you are selling your house for 1,500,000. You receive 5 offers below. Which one will you select?

A) 1,550,000, no realtor, no bank approval letter. Close in 30 days.

B) 1,300,000, cash offer. Close in 5 days.

C) 1,450,000, no loan contingency since fully underwritten and approved already. Close in 15 days.

D) 1,500,000, 21 day loan contingency. Close in 40 days.

It’s extremely important, especially in California, to prepare your financing in advance before shopping for a house.

This is because most offers were competing against in California are cash offers, and the only way to compete with cash, is by offering a higher price with a fast two week closing.. And the only way to do that, is by getting a fully underwritten loan commitment upfront before you shop for a house.

Not just a “preapproval letter” but an actual loan commitment which means an underwriter approved the loan. This allows you to waive loan contingency on your offer and close 3 weeks faster than someone who hasn’t already gone through that process.

The competitive advantage here is huge… Because you can have and times get a purchase price excepted for 10 or $20,000 less than your competitor who requires a 40 day closing…

Time is money, especially to sellers who are under contract and purchasing another house and are dependent on the sale of their departing residence to buy the next house.