Why you should insist that your buyer has been pre-approved

At this point in the property market cycle, it is particularly important for home sellers to work with agents who will only bring them offers from pre-approved buyers.

The reason, says Berry Everitt, MD of the Chas Everitt International property group, is that while there is plenty of buyer demand at the moment due to low home prices and low interest rates, many properties are still being “sold” three and even four times until a buyer can be found who does actually qualify for a home loan.

“This is a cause of unnecessary anxiety and possible financial stress for home sellers, and can largely be eliminated if your agent makes sure that a potential buyer has been pre-approved before writing an offer to purchase.

“It is also important for all parties to understand that pre-approval, often with the assistance of a mortgage originator, is not the same thing as pre-qualification.”

Writing in the Property Signposts newsletter, he explains that when buyers are pre-qualified for a home loan, it just means that they have been given an estimate of how much they should be able to borrow, based on basic information they have provided to a lender about their income, finances and credit record.

“The lender may not even pull a credit report during this quick evaluation and it does not take the buyers’ individual financial situation into account, so the main benefit is to the buyer, who now has a general idea of what price range of homes he or she should be looking at.”

Pre-approval, on the other hand, carries a lot of weight in the real estate industry, says Everitt. “In order to obtain pre-approval for a loan, the potential borrower must provide the lender with all sorts of detailed information and documentation including bank statements, salary slips and tax returns. The bank will also carefully check the applicant’s credit history, ability to pay a deposit if required and, in terms of the National Credit Act, his or her ability to really afford any monthly home loan payments without hardship.

“Once this process has been completed, the successful applicant will receive a letter from the lender confirming that he or she has been approved to buy a home for a certain amount.

“And while that obviously benefits the buyer once again, it is also of tremendous benefit to the home seller. Receiving an offer from a buyer who has been pre-approved in this way provides welcome assurance that he or she does actually have the financial resources, and backing, to go through with the transaction.”

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