So what does it mean to be pre-qualified?  or pre-approved?  These two phrases are basically one in the same. You’ll hear this question many times throughout the home buying process.  Both sellers and Realtors want to know if the buyers coming through their homes have already spoken with a bank about financing, and have obtained “pre-qualification” or “pre-approval” status.  Sometimes, sellers can refuse to let buyers view their home without producing a pre-approval letter.  Knowing that the buyer can write an offer right away, if they like the home, is a feeling that a seller must have in order feel secure enough to let the buyers inside.

From a Realtor’s point of view, there are 4 requirements in order for a buyer to write an offer to purchase Real Estate.  Those 4 things are: 

1.)  Earnest Money – A buyer must give a “good faith deposit”, or earnest money, which is held by the listing broker until closing, should the offer be accepted (in writing) by the sellers.  This amount is usually in the vicinity of 3-5% of the purchase price.

2.) Pre-Approval Letter – As described above.  The buyer must speak to a lender and give information such as job status, current income, social security numbers (for a credit check), and other related data. Once the lender runs the numbers and everything passes, they will give you or your Realtor the vital “Pre-Approval” letter.

3.)  A signed contract  -  Your Realtor will assist you in filling out the contract in full, and explain to you the different contingencies, time frames, and important dates that are needed to be met in order to proceed to closing.

4.)  A Signed Seller’s Disclosure -  Before listing a home on the market, the seller(s) must reveal any damages, defects, or problems that they know about the home. An average Seller’s Disclosure is approximately 5-7 pages long, and contains mostly yes/no questions.  Buyers must sign and initial this document before the contract becomes valid.

Without any of the above mentioned 4 documents, an offer to purchase Real Estate cannot be completed.  Therefore, buyers who are not pre-approved cannot actually purchase a home, and most Realtors will not work with them until they do indeed obtain a pre-approval status.

Getting pre-approval is NOT a hard thing to do.  Almost all Loan Officers that I work with are very polite, and not pushy at all.  It takes about 15-30 minutes over a phone conversation to get pre-approved, and puts you in a much better position on the way to purchasing your new home.  Until getting pre-approved, there’s no way to know which homes you should be looking at.  You might pick up the newspaper one day, and see a home that you really really REALLY love, in the exact neighborhood that you want to live in, but it’s priced at $199,900.  If you aren’t pre-approved, you don’t even know if that’s the type of home you should be looking at.  It might be $50,000 or more out of your price range.  You may have to make sacrifices on some things like neighborhood, square footage, or granite counter tops in order to get the home back into your price range.

Once pre-approved, there is absolutely no commitment to buy.  Your pre-approval letter will usually expire anywhere from 90 days to 1 year, depending on the lender.  If at the end of that time, you still haven’t found the home you want, or have changed your mind about purchasing all together, you do not need to buy.  There is no commitment, no obligation, and no pressure on you, as the buyer, to do anything you are not ready to do.

I work with many terrific mortgage brokers and loan officers, and would be happy to hook you up with one of them.  If you’re thinking about purchasing any time soon, but don’t know what you can afford or what step to take next, call me!  I’ll get you on the right path, and on your way to finding your next home!