Robert Breyley
When it comes to purchasing property, proper proof of affordability is key to presenting a strong offer. Unfortunately, it is common for home buyers and sellers to confuse what is and isn’t adequate proof. How awful would it be to find the home of your dreams, make an offer, but get turned down under the reason that you had inadequate proof of affordability. How could you have avoided this? This article will delve into what it is to be pre-approved vs pre-qualified when entering into the real estate market.
According to Zillow research, around 70% of prospective homebuyers intend to finance their home purchase with a mortgage or home loan. That’s a big chunk. Out of these prospective homebuyers, 21% said that a pre-approved buyer just needs to have enough money saved up for a down payment, 18% claimed that a pre-approval and a pre-qualification are the same, while 15% admitted that they do not know what they are. From this, we can conclude that 54% of all total prospective homebuyers aren’t even sure what a pre-approval is! Meaning the other 46% have a competitive advantage over all the rest.
A pre-approval is a more formal process where a lender thoroughly evaluates your financial information and credit history. This is a more comprehensive process that involves submitting documentation such as pay stubs, tax returns, and bank statements. (See: “UNDERSTANDING THE PRE-APPROVAL PROCESS”) This is a stronger commitment from the lender and an indication that you are eligible for a mortgage worth a certain amount.
Getting pre-approved and demonstrating your ability to secure a loan is essential for sellers to take you seriously as a buyer. This can be used to your advantage during the home buying process and will save you time and give you more negotiating power when it comes down to making a deal. A pre-approval carries more weight in the eyes of a seller and gives you a clearer understanding of your buying power. Do NOT get confused with a pre-qualifying for a loan. They are not the same.
A pre-qualification is an informal assessment of your financial situation based on the information you provide to your lender. It’s a relatively quick process, usually done online or over the phone. Lenders will use this information to estimate the mortgage amount you may qualify for. It does NOT commit the buyer to a lender, and it also does not impact your credit score. Also don’t forget that it does not guarantee you will be approved.
At the end of the day, I think we all could agree that purchasing a home will be one of the most significant transactions in one’s lifetime. I think we could also agree that it can be super complex and unencouraging. Thus, going through the process can be very lucrative to your decision making down the road. When it comes time, find yourself an agent whose goal is to make sure you follow the correct steps to streamline the process, save time, and gain full clarity on your budget, ultimately enhancing your credibility with the seller.