It is no secret that going into 2006, anyone that could fog a mirror could qualify for a mortgage. There were even many cases of individuals getting 90% and 100% loans who later lost their homes to foreclosure after 2007. However, after the financial and bank bailouts, the government has cracked down on lenders, which has made it much more difficult to obtain a loan.
Fewer people are now able to obtain loans due to higher down payments along with higher credit scores required. However, even if you have the down payment and a good credit score, this may still be a concern for you.
When you offer to purchase a home, the seller is unaware of whether or not you are able to get a mortgage or have the require down payment. When the seller accepts an offer on a home it effectively takes the home off the market until all the requirements are met. Sellers are now increasing cautious about accepting offers without knowing that the buyer will be able to get a mortgage. Along with being cautious about accepting offers, they will also be less likely to begin the negotiation process if they are not sure about the buyer.
The best way to curb the sellers uncertainty is to get a mortgage pre-approval letter. If the seller can verify that the lender has alrady performed a preliminary check of the buyer's credit, they will feel better about moving forward in a deal with this buyer.
However, it is important to remember that it is called a pre-approval for a reason; it is not a done deal. There will still be certain cintingencies that will need to be met such as a valid title insurance commiment, proper home owners insurance prior to closing, a final credit check and a few others. However, the pre-approval shows the seller that a major hurdle has been cleared and it is more likely that the buyer will be able to follow through.
Before you really start searching for you new home, you should obtain a pre-approval letter from a lender. It will only take a few minutes for them to print out this letter once they have checked you credit score and can tell you the amount up to which they will be willing to lend you.
Another important document that many over look, but which can be very helpful, is a "proof of funds" letter. This letter assures the seller that you have the money for the downpayment. If there are other buyers interested in the home, having these two documents will put you at the top of the list. Even if there are no other potential buyers, this will assure that your offer gets serious consideration as well as making it more likely that the seller be willingto bend a bit more on the price of the home.