Ever had an agent deny showing you a home because you weren’t pre-approved for a mortgage? It’s not because they’re mean, or they don’t value your business… it’s primarily because they’re looking out for your best interests.

Shopping for a home before getting pre-approved for a mortgage is like walking into a grocery store without a wallet. You may have the desire to buy, but you lack the ability until you have your money with you… or in this case… your prequalification/preapproval letter with you. Let’s cover some basics…

What is a mortgage prequalification?

In a nutshell, a mortgage prequalification is written assurance from a lender that you are able to borrow money to purchase a home up to a certain amount based on your credit and some basic information that you provide them. 

What is a mortgage preapproval?

A mortgage preapproval takes the prequalification process a step further.  In this step, your lender will collect documentation from you to verify the income, employment, and asset information you stated at the time of application.

So, let’s dive into some reasons prequalification/preapproval are important…

1.  You’ll know how much house you can afford.

Getting pre-approved before you begin house hunting allows you to know how much house you can realistically afford. Interest rates change frequently, and there are many different loan types available.  Your loan officer will help you determine what loan program is best for you and will give you important information, such as the interest rate and down payment requirement (if any), for that loan type.  This is important in understanding what price range will keep your payment within your monthly budget, and to determine if there will be out-of-pocket expenses you’ll need to plan for.  No one wants to fall in love with the perfect home only to realize it doesn’t fit your budget.

2.  It adds clout to your offer.

In many markets, homes attract more than one offer. If the sellers are weighing one offer against another, they’ll be sure to examine accompanying prequalification and preapproval letters to determine the strength of their potential buyers’ financing.  The more assurances they have that you’ve done your financial homework, the better your chances of becoming the winning offer and securing a purchase contract.

3.  It could increase your negotiating power.

When compared to a buyer who hasn’t taken this step, getting pre-approved may give you the upper-hand when negotiating price or other terms. If the homeowner is eager to sell, they may be more willing to accept a lower offer from someone they’ve been assured is financially capable of purchasing their home.

4.  It saves time.

Obtaining a mortgage is a lengthy process. Getting pre-approved ahead of time shortens the time between contract acceptance and closing — this way you’re ready to proceed with finalizing the mortgage once you’ve found the home you want to purchase.

5.  Most sellers require that buyers be prequalified

Let’s say you’ve decided to sell your home and you list it for sale.  Each time a showing is scheduled, you spend time tidying up your home. You gather up your family and pets and leave your home to allow the potential buyers and their agent time to walk through and view your home.  But wait, who are you taking time out of your day to allow through your home… are those “buyers” able to buy… or are they nosy neighbors or looky loos?  For this reason, most sellers and listing agents require buyers to be prequalified or preapproved prior to scheduling showings.  This helps protect the homes that agents list and best serve the homeowners that they assist.

6. Without it, most agents won’t work with you.

Just like listing agents who want to make sure their clients and listings are protected from those who may not have the right intentions, buyer agents also have to think about safety… often their own.  Imagine agreeing to meet a complete stranger, maybe even at a vacant home, with no assurance that they are who they say they are.  Scary right?!  

When you decide to begin your home buying journey and are choosing an agent to work with, an experienced and professional real estate agent will always be willing to explain the buying process to you.  You will most likely be asked to meet your agent at their office to discuss your goals, explain how buyer representation works, and answer any questions you have… and, to get a copy of your prequalification letter.. When you hire an agent, he/she will invest countless hours showing you homes over the course of your house hunt.  It’s part of your agent’s job to make sure everyone involved in the process is protected and has the best experience possible.