Kari McCoy's Real Estate Articles
PRE-APPROVAL VERSUS PRE-QUALIFICATION
When you want to buy a home, it is helpful to understand the difference between “pre-approval” and “pre-qualification” for a loan. In fact, there are many Realtors who do not understand the difference. A good Realtor will demand that you obtain “pre-approval” before you go out looking for a house to purchase because she then knows she can vouch for her buyers’ ability to afford the homes she is showing them.
Prequalification doesn’t offer the seller or seller’s agent any solid assurance that your eligibility for the loan has been verified and approved. You can obtain “pre-qualification” by simply talking to a lender on the telephone or entering information online. When you make a purchase offer on a home with only a “pre-qualification,” you are asking the seller to take his house off the market while he waits several weeks to see if you qualify for the loan. This situation is called “loan contingency.” You get to buy the house if the loan comes through. The only benefit to “pre-qualification” is that it is better than nothing and does satisfy most Realtors to begin the search.
However, “pre-approval” has to been obtained anyway, so sooner is better than later. Truly, obtaining “pre-approval” before you begin your home search is the best way to go. Loan pre-approval from the lender is the full monty. Basically, pre-approval is like having a check from your lender for the purchase. Pre-approval means that the lender has your signed loan application and has confirmed and approved the following:
- Your income
- The amount of cash you have for the down payment
- The source of your down payment
- Your outstanding credit cards
- Your credit history
- The type of loan you selected
- The interest rate on the loan
- Any other real property loans
- Any car loans
- Your assets
- Any other debts you have
Loan pre-approval is good for negotiating strategies. In today’s fast paced real estate market, it is not uncommon for a home to receive more than one offer on a property at the same time. If your are the buyer with a pre-approval in hand, your purchase offer is more attractive to the seller, as there would be no loan contingency for the seller to worry about.
Also, a loan pre-approval in hand means a quicker sale. Often the seller will accept a lower offer because the sale is expedited. With a quick sale, the seller can avoid paying 4-11 weeks interest on his mortgage.
Being pre-approved also offers you the benefit of knowing what you can really afford to buy. With pre-approval, you know exactly what you can afford and won’t disappoint yourself by looking at houses out of your price range.
Any lending institution happily will provide you its pre-approval services. The process of obtaining pre-approval takes approximately three weeks. After you have obtained pre-approval and you have found a house you want to buy, your lender must approve the purchase price negotiated between seller and buyer. Some buyers are so excited about finding their dream homes, they don’t like to wait for pre-approval before beginning their search, but this approach may actually obstruct them from being able to buy a home quickly.
When you are applying to a lending institution for pre-approval in a market where loan rates are rising, make sure that your lender locks in your loan rates, points, and loan fees. Most lenders do not volunteer to do this. You need to specifically request it. Each point is 1 percent of your loan amount. For example, 2 points on a $100,000 loan would be $2,000. The present going rate is 1 point. Some lenders allow you to pay more points to lower your interest rate.
Put the horse before the cart. Channel all your enthusiasm for finding your home-sweet-home into preparing to be able to purchase it when you find it by obtaining your pre-approval from the lending institution of your choice.
Kari McCoy is a resident of El Dorado Hills and owns the Kari McCoy Group, Residential Real Estate, at Coldwell Banker. Call her at (916) 933-KARI (5274) or e-mail her at sold@karimccoygroup.com.
Copyright© 2010 Kari McCoy