This is a topic that comes up often. There are several reasons that a good Realtor will require you to do this before taking you out to see property. Often times the basis for this requirement is not explained well and tends to leave a bad taste in the buyers mouth.
I will do my best to explain a few of the reasons below so you have a full understanding as to why this step is important, and important to complete BEFORE looking for property.
1) What price range are we looking in? What can you afford? If you don’t know, then I definitely don’t know. There is only one way to find out. Having a mortgage broker or lender per-approve you will give you a very clear understanding of what you can afford. Furthermore, it will give you an idea of what your down payment will need to look like when we write a contract and go to closing.
2) It gives me a number to work with. Now I know what to look for and in what price range. It would do neither one of us any good if we spent hours – days looking at property between $200,000 – $250,000 when you are only pre-approved for up to $185,000. This does 2 things. One, you spent time looking at nicer more expensive homes only to find that the ones you can afford are now suddenly a letdown. Two, your emotional state and frame of mind about the process will not recover completely. This prohibits you from making an emotional connection with any future properties.
3) Many times the Seller will not even entertain an offer unless you can provide a pre-approval letter. And, in some cases, they will want you to get pre-approved with their mortgage lender or contact. This does not happen often but it does happen.
4) Deep, dark little blemishes on your credit report that you didn’t even know about or remember, can prevent you from qualifying for a loan completely. The pre-approval process will run your credit report and identify and address any issues or blemishes on the credit report. Better to find them sooner rather than later.
5) It gives you an advantage and more bargaining power. Look at it from the seller’s perspective. If you had 2 offers on the table and one was from a “Pre-Approved” buyer and the other was a buyer that was waiting to get pre-approved once they found their house, the sellers will almost always go with the “Pre-Approved” buyers. Even if their offer is a little less.
6) And lastly, Realtors are paid on commission. Meaning that we only get paid if you buy. We are 100% willing to invest the time for as long as we need to so we can find you exactly what you are looking for at the best price. The pre-approval is your commitment to us. It says, “I’m serious about buying and not here to waste your time”.
So there you have it. In the end the pre-approval is meant to protect you and the Realtor while providing clarity. So the next time a Realtor asks you if you are pre-approved, or if you would be willing to get pre-approved before viewing property, you will know why.