By Bruce Smith
The other day I got a question from a client I have just began to work with. She was feeling overwhelmed with the whole home buying process. She asked me a very good question. Should I get pre-qualified, or pre-approved for a loan or wait until I make an offer, or does it matter?
Yes it matters! Any buyer, in any market, especially this market needs to get pre-qualified. You want to be pre-qualified so you know the loan amount you can borrow for your purchase. What sense does it make for a buyer to spend time and energy looking at houses priced at $350,000 when they can only afford $165,000.
Pre-qualification is when your lender determines your “Debt to Income Ratio”, by evaluating your assets, income and debt information. This is the way your lender determines how much you may qualify for, can afford or how much they may be able to lend you. Your lender may or may not run a credit check when pre-qualifying you. Pre-qualification doesn’t offer a loan commitment but it is a fine first necessary step in the home buying process.
To be taken seriously as a buyer you need to become pre-approved. Your lender will begin the pre-approval process by taking a full mortgage application, pull credit checks; determine the loan amount and requirements. At this point, all the calculations of a full pre-qualification are done and you lender will review the file and address any concerns. The lender can now obtain tentative approval for the loan based on the borrower fulfilling certain conditions. These conditions may be verification of employment; income; asset; debt; letter of explanation concerning late payments, bankruptcy, and foreclosure. Pre-approval is the best and highest form of approval short of full approval on a specific property under contract.
The most important benefit of pre-approval is that the seller will take you seriously. That means a lot when you want to get your offer accepted. When my clients are selling their houses, they don’t take buyers seriously that are not pre-approved. I can’t imagine any other seller accepting anything less either.
In conclusion, pre-qualification is a good way to start off the buying process; however it is just one of the first necessary steps in the home buying process. Pre-approval is an absolute necessity if you are to be taken seriously as a home buyer and successful in your effort to purchase a home. Otherwise your home buying experience will be one filled with frustration, stress and disappointment when it could have been a fun opportunity!