Why, you may wonder, do agents ask for my pre-approval letter before they will show me homes? Often, buyers think, "I will get pre-approved when I find the right home." This can present several problems for you when moving through the home buying process.
Read on for the top 5 reasons that agents ask for pre-approval:
1. In many areas, if you find a home in nice condition that is priced appropriately, there will be multiple offers the first several hours on the market. The lack of a pre-approval letter will absolutely kill your negotiation power or ability to even write an offer, so why look without it? Most sellers will not wait to respond to other qualified offers while you are working on obtaining financing. For all the seller knows, you may not qualify for the loan. If there are three perfectly good offers from buyers that are serious enough to have taken care of their financing ahead of time, what is the benefit to the seller in stalling for you and potentially losing one of the qualified offers? This is an easy way to set yourself up for serious disappointment when the seller moves ahead with another buyer.
2. In today's lending climate, there are more hoops than ever to jump through to qualify for a loan, and there is a very real possibility that you may not qualify for the loan type or rate that you want if your financial house is not in excellent order. Student debt, medical collections, credit report errors, lack of savings, lack of job history, debt to income ratios, etc. can all have a significant impact on your loan terms and whether or not you'll even get approved. When you take the time to handle your financing prior to looking at homes, you'll have the opportunity to correct any minor issues that are preventing approval before you find (and lose) a house that you love.
3. Many homes are only listed as being available to certain types of conventional (or cash) buyers due to their condition, as they may not meet more stringent FHA or VA financing guidelines. Wouldn't it be disappointing to find a house you loved only to find out you can't get the type of financing needed to purchase it? Having financing in order prior to looking saves you time by ensuring that you are only viewing properties that will work with your respective loan type. It will also help your agent streamline the listings that she is sending you and not clogging your inbox with homes that don't work for your loan.
4. It's common for our sellers to tell us that they don't want unqualified buyers in their homes, which makes sense considering that they don't know who is coming in the door while they are away. Some sellers request that their homes only be made available for showings to serious buyers - and that means that they are already qualified. Sellers spend time cleaning, preparing, removing pets from, and ultimately leaving the home for showings. For a buyer, the time spent online or with a lender for pre-approval usually takes 15 to 20 minutes, so it seems fair to ask that of the buyer in exchange for the hours the seller may have spent readying the home to show.
5. Finally, in recent years, safety has become an issue for agents as violent crimes against us have become more visible in the media. It can be a scary prospect for us to meet a buyer at a home when we have never met the buyer before and know nothing about them - especially if the home is vacant or in a secluded area. It gives us a level of comfort when you have actually spoken with a lender and are legitimately working through the process towards the ultimate goal of purchasing a home.
In summary, when we ask for a pre-approval letter ahead of showing you homes, we are not trying to make your life difficult. We are actually attempting to make your life easier by saving you time in looking only at homes that you are able to purchase, helping you avoid the disappointment of losing a home you love, and improving your leverage when negotiating.
Most agents have trusted lender contacts if this process seems daunting. Don't be afraid to ask for a referral if you don't know where to start. You'll be glad you did things in the right order!