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Importance of a Pre-Approval

Real Estate Agent with Cypress Residential Group

Another topic that so many home buyers get confused with is the mortgage.  The first aspect of the mortgage that "we" the real estate community is guilty of throwing around some of "our language" is with Pre-Qualification and Pre-Approvals.  What is the difference and which should you have when?

Pre-Qualification simply means that you have contacted the bank, either by phone, internet, or in person, and you have told them some of your personal information.  With the information that you told them, the loan officer has ran those numbers through his/her computer and come out with a number that they think you could afford.  There has been no verification of any of the numbers and typically your credit report has not been drawn.

Pre-Approval is the next step.  This is when the loan officer has asked you to bring in paystubs, W2's, and bank statements and you have given them permission to pull your credit report.  Therefore, all of the numbers you have given them is verified with very little left to confirm.  Typically banks will do a verification of employment and of funds before closing.

So what do these terms mean to a home buyer?  Or even a home seller?

I always like to make things as simple as I can, so this is how I explain it to my clients.

If I walk up to you and say I want to buy your car.  I look at it and say, I will give you $20,000 for it.  What's your first question, do I have $20,000??  Well no, but the bank will give it to me (right??).  If I haven't don't have the loan ready, then you don't know if I can get money or not, but if I say, the bank is waiting let's go do the paperwork, which one excites you? 

If you walk up to a home seller and offer an amount but tell them you don't know if you can get the money or not, it isn't that exciting and they aren't going to negotiate much on their price.  Why should they, you may not even be able to get the money!

So in my opinion, the prequalifcation is merely for the home buyer.  That let's you decide if you want to preceed with the process or not.  If you are going to make an offer on a property then you need to be pre-approved.  I high discourage my clients from making offers without a pre-approval.  You won't get the best deal.

Be prepared and knowledgeable when you write an offer to purchase.  Otherwise you can be leaving money on the table.

This blog was written by:

Nick Ratliff, Realtor
Keller Williams Bluegrass Realty


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