The Most Important Step To Buying A Home

By
Real Estate Agent with Howard Hanna Real Estate Services

 

 

If you were taking a home buying class, this would be the first thing you talk about. Basically real estate 101, getting pre-approved.

It may seem simple, yet many potential buyers are making a huge mistake by either neglecting this step or only getting pre-qualified, which is much more watered down version.

Failure to get a firm pre-approval may end up costing you the home of your dreams.

 

GET PRE-APPROVED NOT PRE-QUALIFIED

When the real estate market was slow, the sense of urgency to get financing was not very high. Buyers figured they could take their time to find a home, and then they'd firm things up with their lender afterwards.  However, with the market starting to really heat up and inventories still low, buyers must change this lackadaisical mindset.

The problem isn't that buyers are totally forgetting to speak to a lender, although some still do not do this up front. They are simply getting pre-qualified instead of pre-approved, and there is a big difference.

A pre-qualification is just the initial step, typically a phone conversation about your overall financial picture. The lender may discuss income, debts, and go over different payment options, but it should not be confused with a firm pre-approval. The problem is that many buyers only do this initial step, and have the false sense of security that getting a loan will not be a problem. Some find out the hard way.

In order to grant a full pre-approval letter,  a lender will likely complete a formal application, pull credit, and collect specific documentation from you such as pay stubs, W-2's, or tax returns. This will allow them to better define your maximum price range. It may not seem like a big deal but this extra step makes all the difference in the world.

I have seen cases when a buyer gets pre-qualified over the phone, and then ends up not qualifying once the lender verifies all pertinent information. Don't let this happen to you.

 

DO YOURSELF A FAVOR

Getting pre-approved will make you a stronger buyer and allow you to move quickly if needed. In an active market, you never know when that special home will come on the market, and when it does, you will need to act with a huge sense of urgency. Waiting until after you find your home to get your financing in order may be too late.

With multiple offer situations becoming common, having a solid pre-approval letter may even help you win out during a bidding war.

The difference between getting pre-approved and pre-qualified is merely time and a little effort on your part but is well worth it. In fact, it could ultimately determine whether or not you get the home.

 

If you liked this post, please subscribe to our blog. We always appreciate having new readers and more importantly, enjoy making new friends.

 

Here are some of our others posts that may interest you as well:

One Question That You Absolutely Must Ask Your Clients

5 Reasons Why Using A Local Agent Is Better

Cool Virtual Tool To Help Pick Out Paint Color

Is Social Media Killing Confidentiality?

Real Estate Agents Are Not Just Door Openers

 

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About The Authors:

Dan and Amy Schuman are agents with Howard Hanna, the area's largest real estate company. They live in Solon Ohio and specialize in Cleveland Luxury Homes, working with buyers relocating to Cleveland, and first-time buyers.

 

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The Most Important Step To Buying  Home is the property of The Schuman Team and may not be duplicated or used without their written consent. ©February 2013

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Re-Bloggged 4 times:

Re-Blogged By Re-Blogged At
  1. Mike Mitchell 02/11/2013 07:45 AM
  2. Graziella Bruner 02/11/2013 12:57 PM
  3. Sharon Sapp 02/12/2013 07:22 AM
  4. Doug Patterson 05/18/2013 07:43 AM
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Topic:
Home Buying
Groups:
Advice for Buyers
Ohio Active Rainers
Cleveland Ohio Real Estate
Cuyahoga County Ohio Real Estate
Tags:
steps of home buying
the home buying process
buying a home

Comments 41 New Comment

Show All Comments
Rainer
51,139
M. Lynn Delatte
Developers Realty

Why do any agents take anyone out without a pre-approval?  They are not serious and will just waste your gas.  And even if they find a great home that they love, they can't make a serious offer without the pre-approval.  Most sellers do not take pre-qualification letters seriously.

February 12, 2013 05:42 AM
Rainer
246,701
Frank Castaldini
Realtor - Homes for Sale in San Francisco
Coldwell Banker

Well said.  When I meet with buyers at my office I go over the buying process.  The first homework they get from me is to speak to a loan officer who will explain loan options and help determine their afffordability.  We need to know what they can afford before we start looking at property.  Great post.

February 12, 2013 05:58 AM
Rainmaker
348,334
Debbie Cook
Silver Spring and Takoma Park Maryland Real Estate
Long & Foster Real Estate, Inc
YES - If you are engaged in a multiple offer situation, having a solid pre approval can make the difference between getting the house or NOT!
February 12, 2013 06:27 AM
Rainmaker
62,603
Adell Forbes (Realtor)
Sell, Buy, Rent Atlanta Homes
PEMCO Realty
Without a pre-approval letter you don't know what you can really afford....why waste time and gas looking at what you think you can afford or should be able to afford. It's like going shopping, and standing in line at the cash register without knowing if you have money on your card to make the purchase.
February 12, 2013 06:31 AM
Rainmaker
204,179
Peggy Wester
Real Estate Agent Ozaukee & Washington County Real
Think Young Team--Realty Executives Integrity

A great post for every buyer out there thinking of purchasing a home. Like others have said here, I simply won't take a buyer out until they have that pre-approval letter. And if they refuse to get the letter, that's nothing but a big red flag. Congratulations on the feature!!

February 12, 2013 06:50 AM
Rainmaker
52,507
Sharon Sapp
For Old Fashioned Service with Today's Results!
Century 21 Gold

Great post. Although most of this say this a lot, I don't think it's something you can NOT say enough! I'm going to repost this so maybe more people can be reached!

February 12, 2013 07:20 AM
Rainer
118,336
Ron Aguilar
Mortgage & Real Estate Advisor since 1995
Real Estate Buying Advice

I am on the phone all day, during the initial call I am trying to pre gualify them first. After a complete 1003 is done with supported documentation and yes the big one, THE CREDIT REPORT. I now begin the next stage, home buying consultation way before I turn them lose to a Realtor

February 12, 2013 07:28 AM
Rainer
17,000
Joey Arce
NUllennium Realty/NUllennium Lending

Thanks for reinforceing this IMPORTANT fact. A pre-approval holds water! A prequal does not verfiy that a buyer has money in their wallet or can afford the mortgage. 

February 12, 2013 07:46 AM
Rainmaker
268,209
Travis "the SOLD man" Parker; Associate Broker
email: Travis@theSOLDman.me / cell: 334-494-7846
Team Linda Simmons, Enterprise, AL 36330

Good article. I ALWAYS stress the importance of getting the PA letter to submit with the offer.

February 12, 2013 07:55 AM
Rainer
104,249
Ric Mills
Integrity, Honesty, and Vast Real Estate Knowledge
Keller Williams Southern Az

Great advise.  The pre-qualifier is just the first step.  Getting a full pre-approval makes you a great buyer.

February 12, 2013 08:06 AM
Rainmaker
113,355
Sean Williams
Your Louisville Realtor
AcklesWilliams of Semonin Realtors

I cannot stress enough how important getting pre-approved is to my buyers, especially 1st time home buyers. It gives you a concrete price range, gives you negotiating leverage & speeds up the entire process. Great post!

February 12, 2013 09:42 AM
Rainmaker
1,239,337
Gene Riemenschneider
Turning Houses into Homes
Home Point Real Estate

Most buyers are cash.  Having a good pre-qual letter can do a lot for you when buying.

February 12, 2013 12:19 PM
Rainmaker
629,608
Stephanie/Bob The Ruiz/Miller Team
The Ocala Dream Team
Keller Williams Cornerstone Realty

Hi Dan and Amy, we agree, however our lender is pretty good at just pre-qualification and knowing they will be approved.

February 12, 2013 12:57 PM
Rainmaker
340,970
Nina Hollander
Your Charlotte/Waxhaw/Fort Mill Area Realtor
RE/MAX Executive Realty/Charlotte, NC

I've never figured out why people have such a hard time understanding the difference between pre-approval and pre-qualification. I think a lot of lenders aren't doing a great job of explaining either.

February 12, 2013 01:23 PM
Rainmaker
296,882
Dan and Amy Schuman
Luxury Home Specialists
Howard Hanna Real Estate Services

Ronald - That is good business.

Sajy - I trust a few, but still feel more comfortable having buyers go through te formal process.

Robert - Hope this is your best year as well.

Carla - Well said!

Graziella - Veterans as well can get into a bad habit of just assuming their repeat clients are solid financially. Some may feel embarrassed asking someone they've worked with in the past to get a formal pre-approval.

Jon - Thank you so much for the kind words.

Harry - Great advice. No new purchases and don't change jobs!

Bobbie - It's unfortunate when they don't listen and I think we've all had this happen to one of our buyers.

Roger - Hopefully, he learned his lesson.

Erica - Us as well. It's always the lenders we don't know that make me nervous.

Joan - The shift in the market does require us to be more diligent with our buyers to get their financing in order up front. I think many in the industry got lax during the downturn.

Andover - Many buyers who are wealthy and successful just assume that getting a loan won't be a problem. They think that just because they make a lot of money means a lender will give them a loan no problem. This isn't always the case though.

Joyce - So true.

Christine - Couldn't have said it better myself.

Scott - Don't see it much here, but a good idea.

M. Lynn - You are in my backyard--perhaps we'll meet in person some day.

Frank - You seem to run a smart business. Best to you this year.

Debbie - Will become more important as the market heats up.

Adell - Makes sense to me.

Peggy - We won't either. Some people simply don't have the sense of urgency to go through the approval process until they find a home. This makes sense to many buyers, but obviously not to us because we have all seen deals fall through due to financing.

Sharon - I wish all buyers would read this.

Ron - Great advice.

Joey - Thanks so much for reading and your comments.

Travis - No offer should be submitted without a pre-approval.

Ric - Why wouldn't someone want to present themselves as solid financially? It makes them a stronger buyer and can only help during negotiations.

Sean - All good points.

Gene - Cash buyers are the best, but not predominant in our market.

Bob - I am too conservative to accept just a pre-qual. I was in the mortgage industry for 13 years and saw too many horror stories to leave anything to chance.

Nina - Agreed.

 

February 12, 2013 05:52 PM
Rainer
81,512
Jim Basquette
CRS, CNE, SFR, e-Pro
Huff Realty

I find too many lenders do a pre-qualification and put it on a letter that says pre-approval.  They are not willing to do the work. 

February 12, 2013 07:28 PM
Rainer
29,674
Nancy Middleton
Nancy Middleton, Counselor Realty, Minnetonka, MN
Counselor Realty, Inc.

Dan and Amy: I agree with the many who responded that they won't even show homes to people who aren't willing to meet in person with a lender. I encourage them to use my lender whom I've used for 34 years and trust. It is in their best interest to use an experienced lender, not just their friend who has become a lender  recently. If they aren't willing, it shows me that they aren't, serious motivated people who really want and are prepared to buy a home, not just look at homes. It has to be a full pre-approval letter that will go with the PA for an offer, and not just a Prequalified letter that "they look good." This is really the first step to buy a home as you said, Dan and Amy.

February 12, 2013 09:22 PM
Rainer
275,327
Kimo Jarrett
Kimo's Lifestyle Solutions
WikiWiki Realty

There is a a comprehension issue with buyers who believe that a pre-qualification is a preapproval to secure a mortgage loan. Additionally, many real estate agents are advising their clients about mortgage terms, conditions and rates and are in fact breaking the law because they aren't properly licensed as NMLO's.

I encourage all RE agents to secure their NMLO license so your clients can be pre-approved with your assistance.

February 12, 2013 10:58 PM
Rainmaker
699,063
Sharon Parisi
Dallas Homes
Keller Williams Dallas Premier Realty

Dan and Amy, your well done post is a good resource for all buyers!

February 12, 2013 11:20 PM
Rainmaker
80,495
Tom Esposito
Alpharetta Home Solutions

Great advice.  I'll work one appointment with a buyer before I require they be Pre-approved.  Most buyers today, get it!  They know the beginning steps.  They don't waste your time or theirs looking at homes they don't qualify for.  Of course, it's a great time saver and benefit to have a lender who likes working with you and getting and giving referrals, too.  I have one of those and treat her like "gold".  One of the first members of my "team".

February 14, 2013 12:32 PM
Show All Comments
Rainmaker
296,882

Dan and Amy Schuman

Luxury Home Specialists
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