What’s a Pre-approval and Why do I Need One to Buy a House?

20131218_123525You have probably seen some sort of letter in the mail stating that you’re “pre-approved” for something, whether it’s a loan, a car refinance, or a credit card.  Maybe you wanted to buy a house before and the Realtor asked you if you’ve been pre-approved for a mortgage before  they show you the home.  Let’s be honest, the term “pre-approval” sounds like a huge undertaking.  You may think it is something that takes a lot of effort on your behalf, when all you want to do is see the house.  It’s actually pretty simple, but VERY important.  Here are three different ways to view pre-approval, and why it is important.

Pre-approval from the eyes of the bank

The bank wants to loan you the money to buy a home, but they need to make sure that you can pay them back.  Instead of guessing whether or not you can buy a home, lenders will run you through an abbreviated form of the full underwriting process using your income, your debts, and your credit as a barometer.  This allows them to give you an idea of what the maximum amount of money is that you can spend on a home.  Once you have that number, it is important to evaluate what it would be like to live with a house payment at the top of your budget.  Remember that just because you qualify for an amount doesn’t mean you have to spend that amount on a home and max it out. There is no cost for a pre-approval, but there are other costs associated with buying a home. Some pre-approvals are more thorough than others, so ask you Realtor for a list of the best loan officers in town.

Pre-approval from the eyes of the Realtor

I need to make sure that you can actually buy the house before I show it to you.  There is no benefit for you as a buyer or me as a Realtor in showing you a home that you cannot purchase.  Pre-approval lets the Realtor see that a person has gone through the necessary steps to make sure that they qualify to purchase a home.  Pre-approval also insures that we won’t be looking at homes outside of the buyer’s price range since the pre-approval gives us a good idea what you will qualify for.  I drive 20,000 miles a year for business in Louisville alone.  It’s part of the gig, and I understand that, but it is a killer when you show someone 15 houses, write a contract on one, and then you get all the way to the end to find out that the loan fell apart and the client cannot buy the home.  That is wasted time, and money down the drain, and it’s not the buyer’s fault, it’s the Realtor’s fault.  The Realtor needs to make sure that you have the financial ability to buy a house before they show it to you.

Pre-approval from the eyes of the home seller

Selling a home can be frustrating.  People are constantly walking through your home at different hours of the day, and depending on how your life and your schedule are, it can be a hassle to get out of the house for people to look at it.  It can also be a hassle to have to clean up after your kids really quickly because there is a potential buyer coming to look at the house soon.  Think about all the factors that go into your day and then continuously interrupt that routine and see how exciting it is.  Sellers understand that this is what they have to endure in order to sell their home so they do it.  But how would feel if you were doing all these things only to find out that none of the people seeing your home can even afford to buy it?  Your home is actually more of an attraction like an amusement park, only nobody is paying an admission fee.  Sellers want qualified buyers to see their home because only qualified buyers will buy their home.  The reason they have it on the market is to sell it to one of these qualified buyers.

If you’re serious about buying a home, and you want to be taken seriously, get pre-approved, or ask me how to do it!

Ready to move?  Call me at 502.509.9278

Just want to look around a bit?  View Louisville Homes for Sale.

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