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Pre-qualification or pre-approval are the
seller’s assurances that the buyer has the capacity to execute any
contract they enter and will more than likely complete the
transaction. It also
allows your real estate agent to know that you are a qualified
buyer, and what price homes to be searching out for you.
In this
market sellers require pre-approved or at least pre-qualified offers
before they will event consider them.
But which is better and why?
What is the difference between the two?
Pre-qualified
This basically means you have been asked, by a
lender, a series of questions concerning your employment history,
income, debt status and other financial considerations like savings
accounts, etc. Based on
the answers to these questions the lender will compute your debt to
income ratios and determine what price loan you will be able to
qualify for.
Pre-approved
 This
means you have done the above plus you have paid for a credit report
and submitted pay stubs, W2’s and bank statements to your lender to
have your credit, income and employment verified.
Getting pre-approved can be done relatively quickly, ranging
in time from a few hours to a day or two, depending on the
circumstances. Your
lender will then issue a letter or certificate to your agent that he
in turn presents to the seller at the time of the offer, displaying
that you are an approved buyer.
What this tells the seller is that you are not a financial
risk to buy his house. What this means to you is that it puts you in
a better and stronger negotiation position.
Always opt for pre-approval.
You will be required to do this within a specified number of
days after your offer is accepted.
Therefore, it’s in your best interest to do it before you
make an offer, putting you in a stronger position of acceptance or
negotiating.
It is important for you to know and understand that most sellers
consider pre-qualification of no real value and will only accept
pre-approved offers.
Double offers or multiple offers are not
uncommon in real estate transactions in this market.
Sometimes sellers have more than one offer to consider at the
same time. Price is not
always the deciding factor.
If you offer as an example, $2,000 less than another party
and you are approved and they are not, the seller could easily
decide to go with you, the sure thing, as opposed to the other offer
that is just a probable or a maybe.
Another example might be; two offers are made at one time and
the price offered is the same, but you are pre-approved and the
other buyers are just pre-qualified.
Your offer would probably be accepted over the other buyer’s.
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