My listing at 184 Manhattan Ave in Teaneckreceived an offer this week with a “pre approval” from a major bank. The buyer refused to commit to any mortgage bank (his agent told me he’d spoken to 5 banks) so he could shop for the best rate when he was ready. The major bank told him not to worry – they’d give him a pre approval based on what he told them and could fill in the details later when he found a house.
This makes sense, doesn’t it? Isn’t this what you’re told to do? Absolutely but it’s absolutely wrong.
The strongest emotion is fear. When it comes buying a home, fear is the #1 reason buyers make serious mistakes. The young man who wanted my listing could not afford it. He had no idea about the true cost of a mortgage loan and no idea about closing costs. How could this happen? He spoke to 5 different banks and shopped through the web.
It’s very simple – his fear of commitment allowed him to be used by mortgage loan salespeople. They did what he demanded instead of what was right. Because their focus was on establishing rapport to secure a client, they did not do it right. Hoping to build rapport to secure the loan when he found a house does not work. He is now upset because he can’t afford a home he loves.
In the early 80’s marketing folks came up with a neat idea: Let’s redefine a pre qualification as a pre approval. A pre qualification is not verified. You can get a pre qualification certificate after a surface level credit check and a conversation over the phone. I’ve seen this done with just a phone call and nothing more. Pre approvals require proof and that means work on your part.
Proof is verification. You have to bring in documentation like your last 2 years of tax returns, bank statements etc. It’s a bit of a pain but not a waste of your time. You need to gather this stuff up anyway for a mortgage. A true pre approval is actually the initial phase of processing a mortgage. It does get reviewed (when done correctly) by an underwriter. This takes a day or two but can happen in a few hours. It depends on the bank.
Buyers don’t like this. They don’t want the hassle. They also fear being stuck with a bank and not being able to shop around later on and cost. The truth is that you are not stuck with any bank (if they tell you that run away) and it should cost you nothing.
This is why buyers love pre qualifications. It’s easy, immediate and no work. They get a meaningless piece of paper to go along with their offer and have total control. Well, that’s great. You have total control of nothing when you’re jumping off a cliff. Pre qualifications do not help you. You do not know with any degree of certainty what you can afford and what it will cost.
I’ve never had a buyer disappointed like this. I teach my customers how to buy a home the right way and insist that they speak to my banker, Emi Kalici of Weichert Financial. Why? Because Emi has the right model of taxes and home insurance so the monthly payment amount is real. You can’t get that from walking into a bank branch or going online.
Don’t allow yourself to be sucked into a feel good no commitment approach. Don’t allow your fear to put you in a precarious position. Buy a home the right way so your home buying experience is fun, rewarding and successful. This gives you many happy years in a home you can definitely afford.