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Loan Shop Before Home Shop

The residential loan process has become tremendously challenging since 2008. Many escrows have been delayed or cancelled as a result of the numerous recent lender and appraisal restrictions that have impacted the loan process.

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Prospective home buyers typically begin their search for a home many months before they anticipate actually making a purchase.  Their quest most often begins by using various on-line sites and occasionally going out on Sundays to stop by open houses.  During this preliminary phase, many buyers prefer to not work with any particular real estate agent and they begin educating themselves about the market in various areas of interest to them.


After several months, many of these searchers have become familiar with the housing market and may have agreed to work with an agent to help them in the process.  The next step frequently involves seeing several homes by appointments with that agent and, by that time, they will usually have been advised to meet with a lender to get pre-approved for financing.  Often the buyers are quite confident that financing will not be difficult at all, knowing their credit scores are high and that they have 20% down payment already in their bank and/or brokerage accounts.

Many agents accept this confident and unconcerned response from their clients about financing and may be hesitant to do more than suggest a meeting with loan brokers.  As a result, before any lender has actually been involved in pre-approving a loan, a purchase offer may be written for the home the client feels is an ideal match.  Loan brokers can write a letter stating that the prospective buyer has been pre-approved for a loan. However, this pre-approval may amount to little more than what is more accurately termed a loan pre-qualification, based on what the buyers have stated to the lender about their income levels, monthly fixed costs, and on their credit scores.

Going without a Pre-Approval

There are several possible disadvantages of approaching the purchase process without actual pre-approval of a loan.  If there are multiple offers on the identified property and one of them had already received full loan approval, they will be far more favorably viewed by the seller than will one that essentially has only gotten pre-qualified for a loan.  Some sellers may feel uncomfortable taking their home off the market for a period of 3-4 weeks while waiting for the buyers to remove their loan contingency, and in today’s loan environment it can easily take that long for many lenders to complete the process.

Another drawback of not having a pre-approved loan before writing an offer is that there is often a sense of pressure as the loan contingency date gets closer during escrow. Perhaps the seller has by then accepted a backup offer from another party who already has financing arranged.  The buyer may be put in the uncomfortable position of needing to risk losing the home if the loan has not been approved in time, or of taking a chance and removing the contingency before being fully assured that a loan is in place. Sometimes the process is unexpectedly delayed. Loan underwriters can ask for more details about some items on the potential borrower’s tax returns or other information in the loan application. In addition, many lenders will not schedule a property appraisal until after basic loan approval has been determined, and this in turn can easily delay the process by several days.

There is a huge negotiating benefit in having financing already approved before writing an offer.  The buyer who can make an offer that has no loan contingency will obviously have much greater leverage. Most sellers will find it highly appealing to know that all contingencies might be removed in the standard 17 days, rather than perhaps taking up to a month.

Thus, we highly recommend that any potential buyer take the time and make the necessary effort to at least get the loan process started well in advance.  At the least, they can benefit by learning the various alternative types of loans currently available, with some understanding of the advantages some programs may have for them over others. They can be far better assured of succeeding in purchasing their ideal home when it is identified by doing this shopping well ahead of time.  We are glad to provide several excellent and proven-reliable sources of loans to anyone who would like to get started in the process.

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