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    Approved mortgage loan agreement application

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    Real estate agent working sign agreement document contract for home loan insurance approving purchases for client with house model and key on table.

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Too many potential homebuyers see financing as a necessary evil and fail to do anything beyond a simple loan prequalification before beginning their home search.

But before you start dreaming of hardwood floors and granite countertops or fall in love with your potential dream house, it makes more sense to complete To Be Determined underwriting. That way, you can confidently make an offer.

Go beyond prequalifying

Nicole Rueth, SVP and producing branch manager at The Rueth Team, says prequalifying for a home loan isn’t enough anymore.

You provide your income when you prequalify for a loan, and the potential lender runs a credit check.

Instead, Rueth recommends going through TBD underwriting, also known as upfront underwriting. It flips the process, builds a potential loan, and gives you financial approval using your bank statements, tax returns, pay stubs, and W-2s at the beginning rather than at the end of the purchase.

That way, you know how much you can spend because your loan is ready, so all you must do is add the home’s address and purchase price after the sellers select your offer.

Appraisal gaps

At a time when buyers sometimes make offers as much as $100,000 over the list price, they may need to make accommodations if the appraisal falls short of the proposed purchase price.

Buyers can either pay the difference as part of their down payment, attempt to renegotiate the purchase price or walk away from the deal.

Another option, buyers can get appraisal gap coverage. Adding this insurance policy to the contract lets buyers stipulate they will pay any difference between the contract price and the appraised value up to a set amount.

Quick-close loans benefit buyers and sellers

Using TBD underwriting also unlocks other hacks to make the home buying process more like making a cash offer, which speeds up closing and can be more appealing to sellers.

The loan can close in as quickly as eight to 10 days by paying rush fees for the title and appraisal. Closing quickly makes the offer “more like a cash deal,” Rueth says.

She also recommends buyers agree to give the sellers a 60-day free rent back. That way, the sellers have the equity to purchase their next home.

“It’s a common option to make your offer more appealing in such a seller’s market,” Rueth says.

Finally, buyers should consider using a pass-fail home inspection, she says. That means the buyer will either accept the home as-is or be able to walk away without penalty. And the seller can quickly put the house back on the market.

The news and editorial staffs of The Denver Post had no role in this post’s preparation.

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