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Why get Pre-Approved before shopping for a new home

The other day, an acquaintance on Facebook chat contacted me and requested to ask a question of me.  She said it was personal and since I had not known this friend a long time, I wondered what it could possibly be.

Hesitantly, I said "yes".

The next text to appear in my chat was "I would like to buy a home and don't know where to start, can you help me"?

Well, with a sigh of relieve I said "Of Course".

After a few rounds of chatting back and forth, I suggested we speak directly as the chat conversation was getting very detailed.

As it turns out, my Facebook friend was a first time home buyer and was completely lost as to what to do first, who to contact and where to go. I of course, began to explain the following...

“Pre Qualified” not “Pre Approved”

As a rule of thumb, you always want to get a “Pre Approved” lending letter from your financial institution before contacting a real estate agent to look at houses.

This is not a new concept and is widely practiced by most top selling agents, including myself, and has been for a very long time.  

In today's economy it is more important than ever that this be the first step before attempting to buy a new home.

Notice I said “Pre Approved” not “Pre Qualified”.  There is a significant difference in a “Pre Approval” letter and a “Pre Qualified” letter:

  • A “Pre Qualified” letter is a simple document stating that based on the unverified information provided, an individual may qualify for a loan of the specified amount.
  • A “Pre Approved” letter is a document stating that based on the verified and confirmed information provided, this individual will qualify for a loan of the following amount.

See the difference?

There are several reasons for getting pre-approved so let's look at a few of the details:

Credit Score and availability

First it is very important to know what the strength of your credit rating score is.  

Knowing whether a lender will finance a home purchase for you will save time, effort and heartache.  It is a heartbreaking ordeal to find out your credit score is not as high as you thought, and in today’s economy the first thing a lender takes a very serious look at is the strength of your credit score.

You can obtain your credit score from any number of ways; however, I recommend going directly to your lender.  

The reason for this is:  If your credit needs some repair, you’ll be sitting with the person who can guide and assist you the most.  A good, reputable lender will have credit repair programs or recommendations to help start you on your way to improving your overall credit score.

Let’s assume for the purpose of this discussion your credit is OK and your score is above the minimum requirement for the particular lender.

Once verified, your lender will then be able to tell you how much house you can actually afford.  

By providing your lender detailed information regarding your income and expenses your lending officer can then provide you a “Pre Approved” letter in the amount that particular institution is willing to lend you for a new home.

As soon as you know your credit score, and have obtained a “Pre Approved” letter, you are now in the position to begin looking for a new home.

No Disappointments now

With your “Pre Approved” letter in hand, you can narrow the price range of the homes you are approved to purchase.

This eliminates a significant issue of house shopping: Disappointment.

Here’s why:

Let’s imagine you did not get the “Pre Approved” letter from your lender.  You have no idea how much you are actually approved you for, and based on your own research, you estimate you can afford a home with a selling price of $225,000.

You contact an agent who does not ask for your “Pre Approved” letter and the agent takes you out home shopping to find the “Home of your Dreams”!

So, you and your agent write an offer and the seller accepts your offer.  You head to the bank excited and eager about purchasing your new home and complete the loan application.

The lending officer examines your loan application, enters your financial information into their system and the loan officer smiles and hands you a “Pre Approved” letter for $175,000.

What? $175,000 – but I estimated $225,000 – Ah, but you are not the lender nor did you take into consideration their strict lending requirements when you did your research.

You now have several options – Try to negotiate the price of the home down to your approved level or cancel the contract due to funding limitations.

Chances are pretty good; the seller is not going to negotiate the price of their home down $50,000 so you have no choice but to walk away from the “Home of your dreams” dissatisfied, heartbroken and disappointed with the entire home buying process.

It’s now time to start the process over again.  *Sigh*  so disappointing…

Your Position is now strong

Having the “Pre Approved” letter in hand, you are now ready to contact a qualified real estate agent and start looking for your new home.

Remember, a good agent is going to ask for that letter so bring it with you to your first meeting.

Your new real estate agent can now sit down with you, obtain your criteria for your new home (Number of Bedrooms, baths, Square Footage etc.) and show you all the available listings matching your criteria in your price range.

Another detail about having the “Pre Approved” letter is your negotiation positioned is now very strong.  

Once you find one you want to make an offer on, your real estate agent will complete an offer form and attach your “Pre Approved” letter.  This tells the seller and the selling agent: “I am an Approved buyer from my lender and I am serious about purchasing this home, here is my offer”.

Having a strong negotiation position permits the seller to take your offer seriously and possibly consider it above any other offers that have been made without a “Pre Approved” letter.

If your offer is strong and, the offering price is reasonable there is a good chance your offer will be accepted.


Obtaining a “Pre Approval” lending letter from your financial institution before contacting a real estate agent to look at houses saves you time, money, aggravation and disappointment.  It also strengthens your negotiation position when placing an offer on that “Dream Home” you are fully approved to purchase.

Because it can be quite saddening to find out your credit score is not as high as you believe; in today’s economy, knowing the strength of your credit score is an important first step in acquiring your new home.

Once you have the “Pre Approved” letter in hand, you are now ready to contact a qualified real estate agent and start shopping for the home of your dreams!

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Jennifer Mackay REALTOR®
Keller Williams Success Realty
2110 W. 23rd Street, Suite A. Panama City Fl 32405
Direct: (850) 774-6582
Office: (850) 392-1700
Fax: (850) 522-3697
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