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Mortgage preapproval gives buyers an advantage

As the housing market continues its slow but steady recovery, many Michigan investors and residents are considering purchasing properties while prices are still low. At the same time, the market has gotten more competitive than it was over the past few years, and desirable properties are now getting multiple offers at competitive prices, giving sellers an advantage in choosing the most desirable buyer.

Real estate industry experts say that one tool buyers can use to edge out the competition is to get preapproved for a mortgage. Formal preapproval is an extensive process that involves most of the steps involved in actually obtaining a mortgage, but buyers can do it before they have found a specific property.

Financial planners say that pre-approval can help prospective buyers and investors gain more bargaining power and negotiate a better deal in some cases. A typical pre-approval letter will include the amount that the buyer has been approved for along with the loan officer's information.

Savvy buyers can also ask for an estimate on closing costs and fees, which may allow them to compare different lenders early in the process. Some lenders will ask for a small fee for the preapproval letter, while others will use it as a tool to try to win new customers. Either way, buyers should be wary of accepting an obligation to work with that lender on the actual loan as a part of the preapproval process.

As with any real estate transaction, preapproval, choosing a lender, and making a deal on a particular property are complex and require a lot of expertise. Realtors may be able to provide some guidance, but an experience real estate attorney may be better suited to compare the different agreements and terms to help find the most advantageous situation for a buyer.

Source: New York Times, "The Advantages of Preapproval," Vickie Elmer, June 7, 2012.

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