The housing market is about as hot as it’s ever been. The Case-Shiller Home Price Index features a run down of home prices in 20 major metropolitan areas for all transactions and is one of the most cited housing indicators. The supply of existing homes that are preferred by most home buyers is very low relative to the current pace of sales.
One of the biggest things buyers can do to make sure they’re prepared is to get their financing in order. A mortgage approval is designed to tell you how much you can afford, but not all approvals are created equal.
That’s where verified approval comes in. In this article, we’ll compare a verified approval to other mortgage approval letters and highlight the advantages.
What Is A Verified Approval?
With a verified approval, lenders collect documentation from you to confirm your income and assets that you’ll be using to qualify for your mortgage. They also pull your credit to get a look at your qualifying credit score as well as your existing debts to calculate your debt-to-income ratio (DTI). This information is reviewed by an underwriter.
The result is that you’ll know exactly how much you can afford. This is above and beyond the preapproval letters typically offered in the mortgage industry. It should also give you and your real estate agent as well as the seller and their listing agent confidence that the offer you’re making is verified because your information has been reviewed.
Like other types of approval, this can be used to up your negotiation game. If you find a home for less than the amount of your approval, the amount of your approval letter can be adjusted to keep your maximum approval to yourself. This way you can negotiate in your preferred price range without the seller having to know.
Prequalification
In a standard prequalification, a client gives a verbal or written estimate of their income and assets. A lender may actually pull a client’s credit report or the client may be asked to estimate their credit.
The upside of a prequalification is that you can very quickly get an estimate of what you can afford, especially if you’re honest about your credit qualifications, income and assets. However, because nothing is verified, sellers and real estate agents often won’t accept offers based solely on prequalification.
Preapproval
This is a little stronger from an offering perspective than a prequalification because it features a hard credit pull, so sellers and agents know you’re in decent financial shape to qualify.
It also goes through some computerized checks so that a lender can see if you qualify based on various guidelines put in place by mortgage investors. Finally, preapprovals are reviewed by the banker or loan officer who’s doing the loan.
On the downside, as with prequalification, there’s no documentation collected upfront, so if there’s a problem, you won’t find out until after your offer has been accepted and your loan is sent to underwriting. Having to submit and verify additional or missing documentation could also slow you down in getting to the closing table.
The Advantages Of Verified Approval
A Verified Approval goes beyond the standard preapproval by not only doing a hard credit pull, but also getting income and asset documentation upfront. Not only does this allow you to submit less paperwork later on, but both your banker and an underwriter can use this documentation to show you qualify for the loan barring significant changes.
Moreover, the seller and their real estate agent can be assured that you qualify for the mortgage necessary to back up your offer. One of the biggest worries for any seller is that the deal will fall through, and they’ll have to put the home back on the market. Although other issues could arise, they can be confident in the financing.
If a seller is evaluating multiple offers, chances are that they’re going to be drawn to those that are most likely to close. Having financing in place can give you an advantage over your competition.
Conclusion
Unlike the other common forms of mortgage approval, a Verified Approval allows you to have full assurance that you qualify to make a mortgage offer up to your full approval amount. It’s the only approval that relies on verified income and asset documentation in addition to a hard credit pull to go along with review by both a banker and underwriter.