Almost all homebuyers, especially first-time buyers, want to buy the home of their dreams. They are eager to rush out and see the best that is available. While their excitement and enthusiasm is understandable, it is not always beneficial. Viewing properties that are not within the buyer's correct price range is a waste of everyone's time, and always leads to disappointment.
For example, let's suppose there are only three homes available in home Buyer A's and home Buyer B's correct price range. Only one of those homes has three bedrooms, essential to both homebuyers. Buyer A has not taken the time to get pre-qualified for a mortgage and is out looking at homes that may or may not fit their price range. Buyer B, who is pre-qualified, looks at only those homes within their price range and makes a home offer on the one that has the third bedroom. Their offer is accepted, leaving only the two remaining properties available to Buyer A.
Let's look at an alternate scenario. Home Buyer A again looks at all the most expensive properties and foolishly makes an offer the seller can't refuse. Buyer A applies for a loan and is turned down due to lack of income. Lenders will never allow any buyer to purchase a property that they cannot afford. The seller's time was wasted, the lender's time was wasted, and the buyer's time was wasted.
Affordability is based on many factors, not just income. Credit ratings must be looked at, how much debt a person has must be factored in, and not all mortgage programs have the same rate of interest. That's why pre-qualification is important. Once all factors have been examined, a lender will provide a homebuyer with a monthly payment amount that fits the buyer's means, and that saves time for everyone.
Pre-approval is also very important. It is a preliminary commitment from the lender, that based on your application and the documentation you have provided, you stand a very good chance of getting final approval for your mortgage loan, pending appraisal. If you were a seller and two buyers made an offer on your property, would you choose the buyer who has a letter of pre-approval from a lender attached to their offer, or would you risk selling to the buyer who has not received a letter of pre-approval and is perhaps not even pre-qualified?
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