Difference between pre-qualified and pre-approved buyer
While it is now widely understood that the National Credit Act and the banks’ current liquidity problems have made getting a mortgage loan far more difficult, a great deal of time and effort are still being wasted by sellers and agents because they do not appreciate the difference between a pre-qualified and a pre-approved buyer.
Explaining this recently Tony Clarke, MD of Rawson Properties, said :
“If an agent tells you that he has a buyer who is pre-qualified, check exactly what he means – is he pre-qualified or pre-approved?
“The pre-qualified buyer will have been told by the bond originator that he can probably get a bond to buy at such and such a price – subject to certain conditions.
“On the other hand, the pre-approved buyer will have proved to the originator that his income is at a certain level and that his monthly expenses are within limit. He will have shown conclusively that he has the resources to pay the deposit and the costs. They will have been informed in writing that he should be able to raise a bond for so much and buy a house worth so much.”
Clarke stressed, however, that neither a pre-qualified nor pre-approved buyer is guaranteed a bond because, firstly, the home needs to be valued and, secondly, the client’s past payment record on all his commercial transactions has to be carefully investigated by the bank.
“Quite often, the buyer will include in his income calculations a once-off commission or a bonus which may not materialise. These days the banks’ strict policies on credit since the NC Act make it impossible for them to take risks and they will reject the application.”
Asked if it is not possible for the buyer to get a signed pre-approval from the bank, indicating its readiness to lend the applicant a specified amount, Clarke said that the banks will not commit themselves until they have received a signed offer.