Even in this modern day and age, a disturbingly high number of property buyers don’t get pre-approved for their mortgages before buying or searching for a house.

This is either due to pure confidence because the buyer is 100% certain that he would obtain a loan amount he desires, or pure ignorance.

I accept that there is also a group of homebuyers who simply don’t know that there is such a thing as obtaining pre-approval.

And these are the people who I really feel for when they are forced to take on a sub-prime loan because traditional lenders simply refuse to deal with them for one reason or another.

Yet with all the mass media attention that has been given to pre-qualification and pre-approvals, people who got themselves into these tricky situations only have their own negligence to blame.

Now they are stuck with ARMs that are higher than what the market is paying.

Maybe after understanding their credit, they might be able to shave a couple of points off the interest rates should they delay their home purchases for a couple of months while they strengthen their credit score.

And other than that there are a few more pretty persuasive reasons that should convince you to get pre-approved for a mortgage before searching for a house to buy.

Since we are talking about pre-qualification, it is important to realize the difference between pre-qualification and pre-approval.

Pre-qualification simply means that a lender, after discussion with a borrower about his finances, gives an opinion of whether a loan can be approved and by how much. This opinion is based on information provided by the borrower without verifying it’s authenticity.

Pre-approval means that a borrower has submitted the required documentation for a proper mortgage application, and the lender has processed it like a regular application with credit assessment. The final result is an approval for a certain amount with LTV limits.

It goes without saying that a pre-approved mortgage carries more weight than one that is pre-qualified.

Having possession of one results in certain things.

Be taken more seriously by agent

Should you hire an experienced and competent agent who has been around the block for years, the odds are that he/she is going to be a very busy person.

I know this can sound weird to some people, but unless you are willing to put your home search in the hands of a rookie real estate agent, superstar agents often see the existence of a pre-approved home loan as a good reason to take the customer more seriously.

Firstly, because the client must be really serious about buying to go through the hassle with loan application.

Secondly, since in-principle approvals will expire within a specified period of time, the buyer might genuinely be making a concrete offer to purchase a property within that period, which is very soon.

Thirdly, with all the customers that the agent is serving, there must be a way to prioritize all of them. A pre-approved client will surely be worth spending more time with than one who has yet to even walk into a bank.

Fourthly, there is no need to fear that there is a possibility that a buyer would be unable to close a deal due to lack of financing.

Lastly, it gives the agent a general idea of the types of property the buyer can afford. Thereby narrowing down the search and saving himself from wasting precious time.

Be taken more seriously by seller

I have witnessed first hand of home sellers deciding to choose to sell to a buyer even though that buyer had made a lower offer than another.

The reason being that even though the offer was lower, that buyer had a pre-approved home loan on hand.

This gives the seller more certainty to move the deal forward to the next step quickly without wasting time.

Some sellers have been putting their homes on the market for so long that they are truly tired of entertaining potential buyers walking into the open house just to “take a look”.

Those “buyers” seldom get anywhere and are often a complete waste of the seller’s time.

Some buyers even make an offer to buy and only find out later that they are unable to obtain financing.

So the presence of a pre-approval letter helps them sieve out the pretenders from the serious buyers.

But enough about making life easier for agents and sellers. This is about you. You are the one buyer a home anyway.

Pre-approval advantages for buyer

You might care less about how agents and sellers perceive you.

Good for you.

But professionals in the real estate industry don’t champion it for no logical reason.

This is because there are various advantages for you as a home buyer as well to obtain loan approval beforehand.

Firstly, you will discover exactly how much house you can afford. This enables you to focus your valuable time on houses that fit right into your budget.

Secondly, you will be in a better negotiating position than another buyer who is competing to buy that house that has caught your eye. Because while he is clamoring around shouting instructions to a lender for approval, you will be sipping on a cocktail with the owner talking about how he can use the sales proceeds for a vacation. This can give you more bargaining power too if the other buyer’s attempt to get financing proves unfruitful.

Thirdly, you won’t get caught in the race against time to finalize financing before closing. Mortgage approval processes can take some time, sometimes due to loan officers trying to drag it out so that the borrower will have little time exploring the market for a better loan. A lack of time often forces home buyers to sign up for loans which they would otherwise not… because they are out of options!

And finally, as you would have the leisure of time on your side while you are researching home loans before buying a house, you would get exposure to current interest rates that would give you a general idea of what’s available.

Having this knowledge can help you determine whether a lender is trying to be funny with you.

The lender next door could actually offer a better package. And you know it.

A common misunderstanding that home seeker have about pre-approved housing loans is that once they have obtained it, they have to commit to taking it or have to accept whatever terms that comes with it.

That is not reality.

A pre-approved mortgage only ensures that the loan amount a borrower requests is approved.

A borrower is not locked to a lender due to exclusivity or locked to a certain type of loan.

I repeat.

It just means that a borrower can and will get financing for the loan amount needed, or up to the maximum amount stated by the lender, subject to LTV limits.

With all that said, anyone who is searching for a home, or will indeed be doing so in the near future, should definitely get a mortgage pre-approved before starting to look at the beautiful houses of their dreams.