First, Is it Really That Important to Get Pre-Approved?
Let’s take a look at a common scenario…
John and Mary were thrilled to find the PERFECT house. It was exactly what they had always wanted, so they submitted an offer over asking price to be sure and get it. They were already planning how they would arrange the furniture when they got the devastating news that their offer had been rejected. They were not pre-approved with a mortgage lender, and the seller instead chose an offer from another pre-approved buyer even though their offer was lower than John and Mary’s.
This kind of thing happens all the time for buyers who are not pre-approved (see the section below for a brief explanation of the difference between pre-approval and pre-qualification). I know how exciting it is to start looking at homes, but it is heartbreaking to watch buyers fall in love with a home and lose out on it because they were not pre-approved for a loan. Sellers want offers from pre-approved buyers! It gives them the security of knowing you have the ability to actually buy it so they don’t have to risk the contract falling through because of financing being denied. Also, you want to know with certainty what you are able to afford so that you look at homes within your budget and don’t fall in love with something you can’t actually afford.
So is getting pre-approved really all that important? Yes! In addition to finding a real estate agent, it really should be one of the first steps in your home-buying journey. Once that happens and have a solid idea of what your purchasing power is, then we can look for your dream home without having to worry about you losing out to another buyer who has financing lined up.
Pre-qualification vs. Pre-approval – What’s the Difference?
Pre-qualification asks simple questions about income and debt to basically make a guess about what you can qualify for in a home. It could take 10 minutes or less! Although it’s quick, easy, and could give you an estimate of what you can afford, it doesn’t give you much leverage because you aren’t given a formal letter from the lender stating that you can buy a home. Additionally, the estimate you get might be inaccurate; in which case, you’d be shopping for homes in the wrong price range.
Pre-approval, on the other hand, is a more in-depth look at your financial situation and requires some supporting documentation from you. It can take several days as opposed to minutes, but at the end of the process, if they are willing to extend you a loan, you will get a pre-approval letter that tells home sellers you are serious about buying a house and you’re financially able to do so. If you end up making an offer against another home buyer, having a pre-approval letter can be a real advantage. So even though it’s more work on the front end, I highly recommend getting pre-approval when looking at homes.
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