Many real estate agents and mortgage brokers will tell home buyers that pre-approvals are an absolute necessity.
Are they really?
Here is an examination of the advantages and disadvantages of pre-approvals.
1. Home Buyers Will Be Taken Seriously
With pre-approval, home buyers are taken more seriously by lenders, real estate agents and home sellers. Having documentation of pre-approval will show that you are not just looking at houses for the fun of it. When you have done the legwork required to obtain pre-approval you will then be seen as a serious home buyer.
2. You will be able to view homes
Some real estate agents will not show home buyers a home unless they have written proof of pre-approval. The real estate listing agent may be bound by state laws, or by the rules implemented by their company. Some listing agents see it as a waste of time to show a house to any potential home buyer without written pre-approval.
3. Encourages Buyers to Check Their Credit Reports
The pre-approval process involves a close look at debts, income sources, and the dreaded credit report. Through the pre-approval application process, prospective home buyers will have a chance to check their credit score, and to look for any errors on their reports.
4. Helps Buyers Think Realistically about Home Prices
Pre-approvals help buyers focus in on the price range of homes they can really afford. Without the pre-approval process, house buyers may not be thinking realistically about their mortgages, insurance tax bills, closing costs, and other home and mortgage related expenses.
With a pre-approval amount in hand, the house search can be narrowed down to a reasonable number of listings.
1 . It Could be Used to Rush You
Pre-approval letters also come with expiration dates. The pre-approval letter could expire as early as three months from the date of issue by the lender. By placing such a short time frame on the pre-approval letter, the lender hopes to rush the buyer through the viewing process.
Three months may not be long enough to find a house. With an expiring letter a buyer may feel rushed into making an offer and buying a house before they are ready.
2. You can Have More than One Letter
The fact that prospective house buyers can obtain more than one pre-approval letter from more than one lender, with differing lending amounts, kind of shows how easy it is for anyone to obtain a blanket letter. The fact that this can happen sort of diminishes the weight and importance of the letter.
The buyer may feel rushed because they don’t want to have to go through the whole pre-approval process again.
3. Buyers May be Limited on the Types of House They View
Pre-approvals may limit houses you can view. A letter of 200,000 may limit home buyers from viewing homes in the 200,0000-220,000 range. House buyers should be able to view properties above their pre-approved amount because the market and housing prices are both subject to constant fluctuation. Also, a buyer could view a house priced above their pre-approved amount and make an offer that is more in line with the amount they can actually borrow.