Home Buying Process

Step 2: Full Approval

As we discovered under Step 1, building a partnership with a lending professional well in advance of your home purchase is a key component in the team building process.  Again, without home financing many of us would be unable to purchase real estate.

Knowing this, most real estate agents look to have their clients “pre-approved” for a home loan prior to placing a bid or viewing properties.

While being pre-approved for a home loan may seem like a great idea, there is a critical step in the home financing process that missing when a pre-approval is issued - the approval itself. 

Here’s why;

The Problem:

A “pre-approval” by definition simply means that your qualifying information has gone through a preliminary review.  This review is typically done by the bank loan officer or originator – the sales person for the lender.

However, in order to obtain an actual approval from a lender all of your documentation (income, assets, credit, etc) must pass the review of an “underwriter” - the actual decision maker. 

It is in this “underwriting review process” where the lender will attempt to verify that your personal financial information matches the guidelines for the loan program you are requesting.  If you meet the loan requirements, your request is formally approved (guaranteed) and a Full Approval is issued.  If you fail to meet the guidelines, a loan denial is issued and/or you may be offered an alternative loan product.  This alternative loan product is typically at a higher rate or with less favorable terms.

Many of horror stories you hear about a loan request being denied or a loan rate increased just prior to closing is a result of this fundamental flaw in the real estate process.  That is, the pre-approval is commonly issued by a person other than the actual decision maker.  This disconnect between the consumer and the underwriter often results in a false sense of qualification.

The Solution:

Bypass the pre-approval process and insist on receiving a Full Approval from the lending partner you built a relationship with in Step 1.  That is, have all of your qualifying documentation reviewed and approved by the lender’s underwriter well in advance of signing a real estate contract. 

Having a “Full Approval” in hand while you are home shopping is a powerful tool for two reasons;

  1. With a Full Approval in hand prior to bidding on real estate, you will have the confidence in knowing that your financing is guaranteed and that the loan program will not be changed later in the loan process.
  2. The Full Approval is evidence to your realtor and the seller that you are a serious buyer with the “cash” you need to close since qualifying for home financing has already taken place.

During the Homeownership Now Event, we will further explain the risk surrounding a pre-approval and provide examples of how often this creates a problem for home buyers.  Attendees will learn how and where to obtain a Full Approval prior to their home search.

Step 3: Learn the Area