Things Every REALTOR® Wants You To Know – Pre-Qualified vs. Pre-Approved
The age-old question of which came first, the chicken or the egg, can certainly apply to home buying. If you talk to a REALTOR® they will most likely tell you the first person you should contact is a REALTOR®. If you talk to a mortgage broker they will undoubtedly tell you the first person you should talk to is a mortgage broker.
Breaking with tradition of REALTORS® I will tell you it really does not make to much difference who you contact first – as long as both the real estate agent and the mortgage broker are in lock step. That being said, I will say that I believe that it is more critical to talk with a REALTOR® first. The reason is that the REALTOR® will be with you during the entire process. Because of that it is important that you are comfortable with your REALTOR®. The mortgage broker will handle a much smaller portion of the process.
Nevertheless, applying for a mortgage is a critical step and should be done early on in the process. First of all, buyers must determine the amount of mortgage they will be approved for in order to determine what price range of homes they should look at.
As a REALTOR®, one of the first questions I will ask a potential buyer is whether or not they have talked to a mortgage broker and whether or not they have been “pre-approved.” If not, most REALTORS® can refer you to a mortgage broker that they are confident will work hard to be able to approve a loan for a potential buyer. Not only that, the relationship between the REALTOR® and mortgage officer is critical during the process should there be a glitch along the way. It is always important that if there is a glitch – and there often is – that the REALTOR® or mortgage officer can pick of the phone and talk to each other, as opposed to emails from Internet based mortgage companies.
There is a lot of confusion between a pre-qualified and pre-approved. It is very important that buyers understand the difference and get pre-approved for a mortgage. Here is why.
Any real estate agent can pre-qualify a potential buyer for buying a home. This process is a very simple process and only crunches a few numbers. Basically, the buyers state how much income they have and how much debt they have. If the total debt and mortgage payments, including taxes and insurance is less that 36% of their gross income and their mortgage payment is less than 28% of their gross monthly income, then they will LIKELY qualify for a mortgage.
I say ‘likely’ because in the pre-qualify process it does not take into account if the potential buyers are current with payments; it does not verify the income, nor does it review their overall credit worthiness. Personally, I have not done a pre-qualify for years. It is more effective for potential buyers to obtain a “pre-approval” letter from a qualified mortgage broker. Even then it is a first step in obtaining a mortgage.
There is another major reason why I require buyers to get pre-approved prior to showing properties, at least not too many.
Often times potential buyers will decide that they can afford a $500,000 home only to later find out that they will only be approved for a $350,000 mortgage. If I have shown them homes priced at $500,000 every home that I now show them priced at $350,000 will fall short of what they have looked at before. This makes home buying very difficult.
In addition, if I am representing the sellers, I want to see a “pre-approval letter” from a qualified mortgage broker along with the offer to determine how serious the offer really is.
If you are thinking a buying or selling, talk to a real estate professional – talk to a REALTOR® – who can give you the information you need to make an informed decision.
As always, if I can help with any of your real estate needs, please feel free to text or call me at 301-712-8808 or email me at RolandLow1@gmail.com.