A pre-approval is a letter from a lender. It states that the lender will give this borrower a mortgage for up to the amount on the letter. A pre-approval states that earnings and debt and credit history have been reviewed and approved.

A pre-approval benefits both parties in a purchase and sale.

Pre-approval helps buyers

Avoid house hunting frustration: Buyers need to know how much they can spend. When buying a home, it is easy for a house hunter to get excited over a property that is too expensive for them. Falling in love with a property that is beyond your reach makes properties you can afford look bad, so it is self-defeating. Knowing your top dollar helps you avoid that. Your pre-approval gives you a top limit that can help guide your house hunting.

Being competitive: Having a pre-approval is required by informed sellers. Making an offer without a full pre-approval is a ticket to rejection in most markets. Having one from a well-respected lender helps a buyer differentiate themselves from less-prepared house hunters.

It is human nature that the first thing that sellers ask about an offer is “how much?”. The second thing is “will it close on time?”. Having a pre-approval helps the seller have confidence that an offer will close on time.

Seller’s agents know which lenders are reliable. There are some lenders who will provide pre-approvals, but are known to the listing companies for having closing delays. Good seller’s agents will advise their sellers to reject offers that are pre-approved by unreliable lenders.

Having a pre-approval from a reliable lender can benefit a buyer, if other house hunters do not have a reliable pre-approval.

Pre-approval helps sellers

Knowing the closing will be on time: Sellers need to know that the mortgage will go through on time. Their financial plans are based on the sale of the house. The stakes are especially high when the seller is buying another property. They may have a financial cost because they can’t use the equity from the sale of their current property until it closes. They may have planned to move out and move into the new place on the same day or next day.

Advice to buyers

When choosing an agent, choose an exclusive buyer’s agent (EBA) who has experience in your location. Exclusive buyer’s agents specialize in working with buyers, so they have deep knowledge of local lenders; they will know which mortgage lenders are reliable. Because EBAs work only with buyers, your agent will help you use your pre-approval as a positive in your offer negotiation.


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