IMPORTANCE OF A PRE-QUALIFICATION OR PRE-APPROVAL LETTER

Prior to viewing properties with a Realtor, it is important that you provide a current pre-qualification letter stating the loan amount that you can afford.   If you’re serious about buying a home get pre-qualified before you start viewing homes.

When you pre-qualify for a mortgage, the lender calculates the approximate amount you would be able to borrow, based on your current income and debt.  Since you do not complete a mortgage application or provide financial details, prequalification is not a guarantee and simply helps you determine how much you should plan to spend on a home. Before you are approved for a mortgage, you will have to go through the mortgage application process, including a credit check, and provide financial documentation.

Here are the reasons why getting a current pre-qualification letter is important:

  1. You are aware if you can possibly qualify for a mortgage loan.   I have had Buyers contact me on properties that I have advertised.  I ask if it would be a cash deal or would they need to obtain financing.  When they say financing, I ask if they have been pre-qualified.  If not, I give them a list of recommended Mortgage Reps.   In several instances, the Buyers have contacted the Mortgage Reps to find out that they could not qualify for a loan or had to wait to clear up some credit issues.
  2. You have an approximate amount that you will be able to borrow.   Why waste your time looking at houses priced at $200k when you can only afford $125k.   You need to know what price range you can afford.
  3. You can place an offer on a home that you love!   In today’s real estate market, in order to place an offer on a house, you will need to provide a pre-qualification letter if you are to obtain financing.   A Seller will not consider your offer until they have some proof that you can qualify for a loan.   So if you fall in love with a house and then have to wait a day or so for your pre-qualification letter, another Buyer may make an offer and you may lose your opportunity to purchase your dream house.
  4. So not to waste your time, your Realtors time and all parties involved.   You may want to view several houses and not understand why your Realtor is asking to see your pre-qualification letter before scheduling the viewings.  Your Realtor works for free and only gets paid when a deal goes to closing.  So when you want to view some homes, your Realtor looks each one up on the MLS system and has to contact each Listing Agent to check availability and for showing information.  Your Realtor then has to map out each property and coordinate the times for the showing. Your Realtor prints out each Listing and may even do a spreadsheet for you.  Your Realtor uses their time, gas, mileage, and supplies to show you these properties.  And then when it comes time to place an offer, you may find out that you can’t qualify.   Now would that be fair to yourself or your Realtor?

Please note the difference between a pre-qualification letter and a pre-approval letter.

Prequalification is an unofficial estimate of how much house you can afford. A loan officer will make an educated guess about your ability to buy a home based on your verbal or written submissions of income, finances, and credit history. Lenders will not generally pull your credit report during this evaluation.

Pre-approval carries a lot of weight in the mortgage and real estate industry. In order to be pre-approved for a loan you provide your preferred mortgage lender with documents such as tax returns, bank statements, and business licenses among others. The Lender will analyze these and other information gained by calling your employer and pulling your credit report. They will then produce a pre-approval letter that certifies that you have the resources to afford to buy a home for a certain amount. The pre-approval letter will also usually specify the interest rate you will pay for borrowing such a sum. Sellers love buyers who are pre-approved because they have proof that the buyers have financial backing and are prepared to pay the required amount. In real estate hot spots, some sellers won’t even consider offers from buyers without pre-approval letters.