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Thinking About Buying in San Mateo County? Forget About a Preapproval!...You Need to be Fully Underwritten!

October 15 2018
October 15 2018

If you're considering purchasing a home in or around San Mateo County, you've more than likely heard about how crazy the market is.  Stories of sellers receiving dozens of offers and homes selling for hundreds of thousands of dollars above asking have been normal in this market for years.  While rising interest rates and an increase in listing inventory have caused the market to soften, getting your finances in order before going out into this competitive buying environment is not only advised, it's absolutely critical to your success.

 

In San Mateo, San Francisco, and Santa Clara (and many other bay area counties) buyers tend to waive their contingencies in their offers to purchase real estate.  One of the most important contingencies for buyers is the financing contingency.  By waiving this contingency, you're waiving your ability to cancel your offer (after the seller has accepted it in writing), and still expect to retrieve your earnest money deposit (probably 3% of the offer price).  This is a big deal!  If the lender denies your loan, or you can't get your loan funded in time to close the transaction, the seller can go after your deposit.  With a median sales price in San Mateo county around $1.5M this 3% deposit can be around $45k or much more!
You've probably heard realtors or friends and family tell you "you have to get pre-approved" by a lender, or bank.  Well, I'm here to tell you that you need to take it a step further and get "fully underwritten" or acquire what's called a "credit approval".  What does this mean?  Well here's the thing... a pre-approval basically means that the buyer has filled out a loan application, typed in their gross monthly or yearly income, stated how much they have in assets, and had their credit run by the lender.  The lender then electronically produces a pre-approval, or even worse, in some cases, hand writes a letter stating that they've checked all of the above items.
A lender who has electronically provided this type of pre-approval simply doesn't have enough information about your finances for you to be comfortable waiving all contingencies and closing quickly.  What you really need to do is have the lender's underwriter verify your entire file and issue a conditional approval.  At that time, they will verify that your assets are good funds, make sure you haven't had any employment gaps, have proper asset verification, proper down payment reserves, large enough down payment based off of current price and interest rate, verified sufficient trade-lines, etc. Not only will this limit any problems once an offer has been accepted, but it will also allow you as a buyer to close much faster, in turn making your offer more attractive to a seller, and making it competitive with a cash offer.
***It's important to remember that a lender can deny a loan based off of the physical condition of the house or property that is being purchased.  If a house has any health or safety issues, is in poor condition, has unclear title etc. the lender can deny the loan based off of the collateral.  So make sure the disclosures are satisfactory and the inspections have been done by professionals. You will be that much closer to closing and throwing an epic party in your new home!
Here's another quick note....  many of the smaller mortgage brokers or small local banks may not be able to fully underwrite you or may tell you "we don't do that here".  This is because it's far too costly for a smaller bank to underwrite files.  This process can take several days, and smaller mortgage brokers or small banks just don't have the underwriting and processing departments to make this happen unless they know the loan is going to go through (there's an accepted offer, preliminary title report, appraisal) or they have a long-standing banking relationship with you as a client.
If you're a private banking client at a big bank like Wells Fargo, Chase or Bank of America (there are many other large and small banks that can do this as well as mortgage bankers who fund their own loans in-house), they can get you a credit approval and put you in a really strong position to waive all contingencies and close exceptionally fast.
*Remember that no bank will guarantee that they can give you a loan, but the above process of getting a full credit approval rather than just a pre-approval will be a step in the right direction and will remove a lot of trepidation when venturing into the world of Bay Area Real Estate.
If you have any questions about this process, or if you have questions regarding a property that you're trying to purchase, give us a call so we can help you find the answers you need to make a sound investment decision.
Thank you!
Kevin Pickett
Pickett Team

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