In today’s market, the strength of the buyer can have a huge impact on the negotiation process. There are three possible steps involved in applying for a property loan and it is important that buyers understand the terminology in order to make the strongest offer possible. To answer the question of rather or not to get pre-approval, I feel it’s important for you to understand the basics of the loan application process. Let’s look at the three main steps:
- Pre-qualification – In this process, the buyer provides basic information to the lender such as income and debts owed. The lender then gives the buyer a ballpark amount that they might be willing to lend to the buyer based off of the information provided. The lender then pronounces the buyer as being pre-qualified and issues a certificate that the buyer can then show to the seller. Many times a buyer can get pre-qualified without even submitting a mortgage application. This process is not very in-depth and most sellers are aware that pre-qualification certificates are pretty much WORTHLESS.
- Pre-approval – This is a more in-depth and much more useful version of pre-qualification. In this process, the lender actually begins to verify the financial background of the buyer. They will request that the buyer provide paperwork such as tax records, bank statements and they will also run a credit check to check the buyer’s credit history. This process will take anywhere from a few days to a few weeks depending on the buyer’s situation. After all of the information is checked and verified, the buyer is actually approved for the loan and the only lose end is the appraisal of the property.
- Approval – This step is the final approval by the lender. Approval takes place after the buyer has chosen a property and made an offer. The lender will ask for a copy of the purchase agreement and there will be an underwriting process that could take up to 30 days.
Pre-approval is the most useful step in the process that buyers can take to give them the ability to make the strongest offer possible. It is a very powerful weapon that I recommend all my clients have in their negotiating arsenal. Also, by getting pre-approved the buyer can have the confidence of knowing at what price range the lender will approve them for which can save a lot of time and heartache along the way.