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Today’s topic we’re going to be tackling is Pre-qualification letters. This is a real cart-before-the-horse type of situation. We want you to know the reason why before you actually get involved in the process.
1. To avoid disappointments.
That’s a big deal when you’re going out to look at properties.
Let’s say you believe you qualify between $550,000 and $600,000, but you’re not exactly sure. You then start looking at properties at $600,000, and then think, “Well, I might be able to negotiate down $10,000. I just talked to my buddy, he got like $20,000 off his, so I’m looking at something for $620,000.” You visit a property, it ticks off every one of your criteria, it’s an ideal fit, exactly what you’ve been seeking, precisely what you desire. So you go ahead and say, “I want to make an offer on this.” It turns out there are multiple offers on the property. You then call your bank, and it turns out you don’t qualify!
Obviously, that’s disappointing but a lot of people can be like, “Well, I’m a big person, I can deal with that - it’s not a big deal.” The truth of the matter is, what I’ve consistently observed is that people end up comparing every property within their budget to one that exceeds it. So it leaves them feeling disappointed even when they find the right house, arguably the perfect house for their price range. It feels like settling. Nobody wants to spend a half a million dollars and feel like they’re settling for second best! So, in order to protect you in the process, avoid disappointment, and get pre-qualified on the front end.
2. To avoid missing out.
Let’s say you go, “Well, I’m conservative and I know that I can qualify for like $700,000 to $800,000, but I’m only going to spend $600,000 because I don’t want to even come close to maxing out my financial situation.” Well, that makes perfect sense too. So what’s the harm in going out looking at properties? Missing out is the harm.
For example, you go out and look at that $620,000 property and thought you might be able to negotiate down to $600,000, you can still afford $620,000 though - not a problem. You get in that deal and it turns out there are multiple offers, and they’re going to be reviewing offers tonight, so you have to make a quick decision! Let’s also assume that you’ve banked with one of the big ones (Bank of America, Truist, Wells Fargo) for 50 years, and your lender gives you the best deals on the planet. Well, you’re not going to be able to get a pre-qualification letter that night. They’re not going to be able to make a decision based off of somebody who doesn’t have a pre-qualification letter, and they’re likely not going to take your word for it. So this becomes a situation where sometimes you end up missing out on a deal just because you’re not prepared. They often say luck favors the prepared. I don’t know if it has anything to do with luck, but I really do like being prepared. Real estate transactions have enough problems of their own. Let’s not add to them.
Now, if you do find yourself in a situation like that, we do have lenders that will pick up the phone at 7:00 PM on a Tuesday and get us a pre-qualification letter with a conversation after they’ve looked at some debt-to-income situations for you. This is a way we can get around that, but who wants the added extra stress when you can deal with it on the front end?
3. To streamline your home search.
You want to get pre-qualified ahead of time so during your online search - before even calling your real estate agent, you’ll already have the parameters and go, “Okay, now I’m focused on the right price range.”
Why does that matter? If I’m looking in the $620,000 range, I’m really not paying attention to stuff down at $525,000. If I only qualify for $525,000, now I can focus my online search. Because you will find gems that pop up in that price range that are better than everything else in that price range, and if you’re not looking for it, you will miss it. So, it is really hard to look for a large swing of price ranges when you’re out there paying attention.
The answer to the question that we started out with is emphatically yes, you should get pre-qualified. But it wasn’t for the reasons you thought. It has nothing to do with saving the real estate agent time. It has everything to do with saving you time and money, and getting what you want! A real estate transaction is a complex thing and you really want to avoid as many disappointments as possible so that you can get to your goal.
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