Most of my clients can't afford to pay cash and so it's imperative to learn their spending limit and how the house payment will impact their budget. The first thing I tell my Buyers is to visit with a mortgage loan officer (or 2) to determine how much they can spend on a property.
I encourage my Buyers to obtain a Pre-Qualification Letter rather than a Pre-Approval. What's the difference?
- Pre-Qualification means the information you provide to the mortgage officer has been verified with the appropriate documents and a credit check.
- Pre-Approval is usually just talking for 20-30 minutes with a mortgage officer with no proof of income, credit score, etc. With the limited information and with no verification the lender gives his/her "best guess" of what the Buyer can afford.
I believe the first choice, Pre-Qualification, is the only choice for 3 important reasons.
- The most important reason is the Buyer can have the peace of mind they need when looking for and buying a home. The Buyer now knows his/her top limit. If the Buyer's top limit is $150,000 they can look for a home up to $130,000. That way they have plenty of cushion to pay fees, moving charges and closing costs.
- The Realtor will be able to concentrate on finding homes in the real price range. It's a waste of everyone's time and effort for a Realtor to show a Buyer houses for $250,000 if their real limit is $150,000.
- When an offer is made on a home the Seller will know they have a serious Buyer if the Buyer is Pre-Qualified. That makes a huge difference in the ever important negotiation process.
I urge Buyers to see a mortgage lender first before looking at homes for sale. This is a vital first step.
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