When it comes to buying a luxury home in the San Francisco East Bay Area, you have two options: pay
cash up front or take out a jumbo mortgage. Liquidity, tax breaks, and investment opportunities are notable
reasons to choose a loan over a cash purchase. If you choose to finance your home buy using a mortgage,
you must get a pre-approval from a lender. A mortgage pre-approval offers several benefits – from
providing an official estimate of the amount that you can borrow, to increasing your chances to outbid
competing buyers. Here’s everything you need to know about getting a mortgage pre-approval.
In the luxury real estate market, paying in cash is common. But sometimes, taking out a mortgage is a more sensible – and at times profitable – option, even for high-net-worth individuals.
When does a mortgage make sense for a high-net-worth buyer?
Cash transactions certainly have their h3 points – they are faster to pull off and require less paperwork, for example – but taking out a mortgage also makes sense when:
- You can put your cash in an investment that can net you significant returns in a shorter amount of time
- You want to keep cash on hand for any unexpected needs
- You want to capitalize on tax breaks that come with owning a mortgage
- Your financial records are impressive enough to secure a loan with low interest rates and favorable terms
If these conditions match yours, you can take out a jumbo mortgage to buy an East Bay luxury home. Jumbo mortgages – loans that go beyond your area’s conforming loan size limit – were created to help buyers finance the purchase of luxury properties.
What is a mortgage pre-approval?
If you choose to finance your home purchase with a mortgage, getting pre-approved is an important step to take early in the buying process. Your mortgage pre-approval letter will take the place of the proof of funds you would otherwise use for a cash purchase.
The pre-approval process will determine the amount you can borrow and the terms that will be applied to your loan. Lenders will need to see information regarding your income, assets, debt, and credit score. These include:
- Bank statements
- Pay stubs (at least the two most recent ones)
- Tax returns (for at least the last two years)
- W-2 Form
- Credit report
The lender review process takes around one to three days. You will then receive an official pre-approval letter, which will be valid for 60 to 90 days. This means you should be ready to use the letter to pitch offers when you get it. Otherwise you will need to apply for one again.
Get a pre-approval only when you are ready to proceed with the home buying process. Your credit score may take a hit every time you request one because the mortgage pre-approval process requires a hard credit check.
What are the advantages of getting a mortgage pre-approval?
It tells you how much house you can buy
Having pre-approval gives you a clear price range when you shop for homes. This will help you narrow down your options, helping you save time and energy by keeping your search limited to realistic targets.
It makes you stand out from competing buyers
A pre-approval letter shows sellers that you are serious about buying a home. Like presenting your proof of funds when paying cash, a mortgage pre-approval also guarantees that you have the financial capability to pay for the purchase. A pre-approval letter shows your credibility, increasing your negotiating power as a buyer.
It helps you close the home purchase faster
Once you and the seller already agree to a deal, you will have a faster and easier time securing a mortgage because you have already completed the preliminary steps with your lender.
What are debt-to-income ratio and credit score?
When you get a pre-approval, your lender will look at three main components of your financial record: your income, debt, and credit score.
Lenders typically require a FICO credit score of 700 or higher. The higher the credit score, the better the estimates you can get. There are several ways to obtain your credit history and credit score. Get a free annual credit report through credit bureaus like Experian, Equifax, and TransUnion if you want to check your rating and make adjustments early.
Want to increase your credit score before getting pre-approved? Cut back on unnecessary expenses and avoid applying for new credit as soon as you decide that you want to buy a home using a loan. Another way to improve your credit score is to pay off any outstanding debt and to make sure that all your bills are paid on time.
Where can I get a mortgage pre-approval?
Choosing the right lender is important when getting pre-approved. Ask your agent for top recommendations that serve home buyers in your area so you don’t waste any time searching for local options.
If you start early, you can approach at least two to three lenders for pre-approval. This will allow you to compare the loan rates, terms, and conditions that different lenders offer.
Contact the Chawla Real Estate Team for more home buying advice
Buying a home in the Bay Area is easier than you might think, especially when you work with the right agents. The
Chawla Real Estate Team
is here to assist you with the luxury home buying process from start to finish. Get in touch with us today at 510.406.4836 or email JouJou(dotted)Chawla(at)ChawlaRealEstate(dotted)com.