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Robert  Guth

"SW Florida native, experienced Realtor, 
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Pre-approval or Proof of Funds.  What Are They, And Why They Are Important For Buyers

Good Realtors will only show homes to customers who provide their agent with either a proof of funds if they plan to pay cash, or a pre-approval letter from a lender or bank. Here is why…..


What is a mortgage pre-approval?

In a nutshell, a mortgage pre-approval is written assurance from a lender or broker that you’re able to borrow money to purchase a home up to a certain amount. It’s based on the income, employment and asset documentation you supply at the time of application, in conjunction with your credit history. As with any good, top producing Real Estate Agent, I only take customers out to see homes if they have provided a pre-approval letter from a lender or proof of funds. Home sellers want to know that we are only bringing in qualified Buyers, and that we have some background on the person we are taking in to the privacy of their home. I protect my Sellers the same way. And if I am asked to show homes, I assume it is because the customer is ready to make offers if we find a property they would like to pursue. Sellers will not consider your offer without a proof of funds, or pre-approval letter. Early in my career, I spent 6 months with a customer, an attorney. He had an online pre-qualification letter from Quicken Loans, which proved to be worthless. Once he finally found a home he liked, he was denied for financing due to enormous student loan debt. That was 6 months of our time and money lost, so as you may understand, we must make sure we are only working with customers legitimately able and ready to buy if we find the perfect property. Protecting Sellers, and being ready to make an offer completes the commitment.


5 reasons to get pre-approved


1. It carries more weight than a “pre-qualification”.

pre-approval differs from a pre-qualification. With the former, the lender has checked your credit and verified your documentation to approve a specific loan amount (usually for a particular time period such as 30, 60 or 90 days). A pre-qualification can be useful as an estimate of how much you can afford to spend on your home, but it’s a less accurate indicator of your ability to purchase. A pre-approval always carries more weight.

2. You’ll know how much house you can afford.

Getting pre-approved before you begin house hunting allows you to know how much house you can realistically afford. Knowing this narrows down the options and makes the selection process more efficient. Not to mention, it protects you from the unpleasant surprise of realizing the home you fell in love with doesn’t fit your budget.

3. It adds clout to your offer.

In many markets, homes attract more than one offer. If the sellers are weighing one offer against another, they may lean towards the one accompanied by a pre-approval letter. That’s because pre-approvals instill confidence that the buyer is financially capable of purchasing their home.

4. It could increase your negotiating power.

In addition to strengthening your offer when compared to buyers who haven’t taken this step, getting pre-approved may give you the upper-hand when negotiating the price. If the homeowner is eager to sell, they may be more willing to accept a lower offer from someone they’ve been assured is financially capable of purchasing their home.

5. It saves time.

Obtaining a mortgage is a lengthy process. Getting pre-approved ahead of time shortens the time between contract to close — this way you’re ready to proceed with finalizing the mortgage once you’ve found the home you want to purchase.

6. Without it, most agents won’t work with you.

Makes sense, too. Right? Think about it: when you hire an agent, he/she will invest countless hours showing you homes over the course of your house hunt. If you were in their shoes, wouldn’t you want assurance that your hard work would lead to a favorable outcome for both you and your client?


Streamlined Hunting with Pre-Approval

Most homeowners start out by browsing homes for sale online to get an idea of what neighborhoods and housing styles they like. If you don’t know what you can afford, you may be looking out of your price range and wasting your time. You may also be looking below what you would have qualified for and not getting the right home for you.

If you start off by getting a pre-approval, you can sort by price, identify the right neighborhoods, and find your dream home much faster.

Better Results From a REALTOR®

The bottom line is this: REALTORS® prefer to work with home buyers who have a pre-approval in hand for two reasons.

First, a REALTOR® knows the deal isn’t likely to fall through, and second, when they know what you want and what you can afford, REALTORS® are able to do a better job of finding your dream home.

For example, you told a REALTOR® you want a historic home, but the asking price for these homes varies widely. If they don't know what you can afford, they can only do a general search across several price ranges and may miss hidden gems.

On the other hand, if you have pre-approval, a REALTOR® would know what exactly what to focus on and would be able to suggest different neighborhoods, sizes and conditions of homes to match your needs—making it easier to get you exactly what you want.

Higher Acceptance Rate for Buyers with Pre-Approval

Once you find the perfect home, the next step can go two different ways depending on a pre-approval.

If you’re not pre-approved and you find a home you want to make an offer on, you’re taking a gamble. REALTORS® and sellers are less willing to accept offers from a buyer without a pre-approval. Odds are, they’ll go on to the next offer—and you’ll miss out.

However, if you are pre-approved, you have more room to haggle. Sellers may be more willing to lower the asking price, include appliances, cover closing costs or make other allowances to work with a pre-approved buyer.

Less Stress with Pre-Approval

Finally, skipping this step can wreak havoc on your stress level.

If you aren’t pre-approved, you’ll spend longer looking for homes. You may not feel like you’re getting great service from a REALTOR®. You may get turned down once you’re ready to make an offer.

All of this adds more time and stress to what should be a very exciting time in your life.

On the other hand, if you’re pre-approved, you have less to worry about: you know you’re a qualified buyer, you know there are lenders willing to work with you, and you can feel confident when you make an offer.

If you need to get pre-approved so we can look at homes, one local lender I work with and recommend, is Edison Mortgage Group. They have done a great job for all my customers. They have an online application that will make it very easy for you, and quickly provide you with the letter we will need to start looking at homes: