Value of Prequalification for Home Buyers
Home Buyers Should Pre-Qualify First!
Contrary to what many people believe, obtaining a pre-approval letter from a lending institution (typically known as getting pre-qualified for a mortgage) is the initial step in the mortgage process. Once you find that perfect dream home – unless you are paying cash for it, you will need to qualify for a loan in order to purchase the real estate. In other words – to obtain the home, you will need to execute this step anyway.
The real question, then, is when should you get pre-approved?
Our recommendation is that all home buyers get pre-approved prior to searching for homes – and especially before making any offers. The reasons are pretty straight-forward, yet they are often overlooked.
Pre-Qualified Home Buyers Influence Home Sellers
Firstly, understanding what loan amount you are approved for will help you focus your search efforts for that real estate that you would reasonably be able to afford (and be able to obtain a loan for). This often helps speed the process up when working with real estate agents (because they won’t send you homes outside of your price range) and also provides piece of mind as you, as you would have already run the determined your maximum monthly payment and affordability.
Second, and equally important, bids and offers that come from home buyers that are pre-approved typically get preferred over those that do not have one. The reason for this is because the seller and listing agent already know that the loan amount required and ability to make payments for a particular amount has already verified by a lending institution. For home buyers who do not have this, the seller would need to agree to sell them the home (and subsequently take it off the market) based on the assumption and faith that the buyer will be able to qualify for and obtain a loan. This scenario typically makes the seller uncomfortable.
In addition, prequalification criteria can fluctuate and vary based on difference characteristics of the deal – i.e. the type of home, the type of mortgage, the location, the presence of HOA fees, CDD fees, etc. These elements to the home buying process can further complicate matters, should the buyer not already be pre-approved for a home loan.