Recently a buyer asked me “Why should I get prequalified before I buy a house?” They were under the impression that you get prequalified once you have an offer and are ready to take out a loan. I was happy to explain to them why I ask my buyers to get prequalified before we begin house-hunting.
Prequalification Narrows Your Home Search
When you get prequalified your lender tells you how much you can borrow, and that amount should guide your home search. While the number is a close approximation, if you are prequalified for $300,000 it is best to share that with your Realtor so they can find you homes you can afford.
Prequalification Supports Your Offer
When I submit an offer on behalf of a buyer I always include their prequalification letter. It lets the seller, and more importantly their agent, know that my buyer can really afford the home. Real Estate agents hate disappointing their clients, and presenting an offer from a buyer who cannot afford the house is an avoidable disappointment. Prequalification letters strengthen offers and at this point they are almost required.
Prequalification Letters Do Not Impact Sale Price
I had a client who had a prequalification letter that showed they could borrow up to $400,000. The home they really wanted was on the market for $365,000 and they wanted to pay $350,000. They were concerned that showing their prequalification number would encourage the seller to hold fast to their price since “they could afford it”. My response to their concern was, “You can afford to pay $20 for a stick of gum since you have a $20 bill in your wallet, but you value that stick at $0.15. and that is what you are willing to pay.” We negotiated the price to a point where both parties were happy.
To avoid this situation I often recommend my buyers secure property specific prequalification letters. These come from their lender and simply say “Mr. and Mrs. Smith are prequalified to purchase the home at 123 Main st.
If you are considering purchasing a home call or e-mail me! I can recommend lenders to speak with.