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The first step to buying a house that most people miss.

There are a couple basic things every buyer should do when buying a house. The problem is, most people talk about what you should do WHILE shopping for a home. But if you ever do a search for the most common house buying mistakes, you’ll see one thing in the top 3 of every list: get a pre-approval before you even hire an agent! Ironically enough, it’s the first step to buying a house, but it’s also the one that most people miss or do late in the game.

If you haven’t already, read my post from last week, Pre-Approval or Pre-Qualification, Which One do you Need?  In that article, I go over the differences between pre-approvals and pre-qualifications.  Some places will use the terms interchangeably.  So it’s important to note that this article is referring to pre-approvals in the terms of what I discussed and defined in last week’s article.  Specifically, in relation to the use of credit checks.

The First Step to Buying a House, Get Pre-Approved

How the Pre-Approval Affects Home Buying

first-step

If you hired an agent, he shouldn’t let you even look at a house without a pre-approval letter. This letter is the most simple guideline by which you can shop for a home. It tells you what the upper limit is that the bank is willing to loan you to buy a home. Plus, this letter is the FIRST thing the listing agent should ask for when you put in an offer on a home.

When I’m listing a house, the buyers will come buy with an offer on the home. Sometimes they may have earnest money to show they are serious about the offer, but every time they should have a pre-approval letter. It’s great that you can dig up 1-3% the asking price in cash to show you are responsible with money. But will the bank lend you the money for the entire house?

What the Pre-Approval Letter Should Say

The pre-approval letter tells the seller that a lender has already decided that they are willing to lend you money for the home. With that letter, you are verified to be ready and able to buy a home. And typically, that letter should come in well above what the house costs. Let’s say the bank gives you a $400k pre-approval, you should probably be shopping in the $350-$380k range. So the question is, when do you give that letter to the agent?

Before we move on to what you need to make sure you have, let’s talk about the letter you’ll give to the seller. If you have a letter that says $400k, and you find that $350k home, don’t give that letter to the seller. Just let your lender know the address and price of the property and have them send you a letter for that property. The seller doesn’t need to know you can pay $50k more for the house than you are offering.

Make sure you send them a PRE-APPROVAL and not a PRE-QUALIFICATION letter!

Final Thoughts

This is something I harp on both from the selling and the buying side. I can’t stress enough how much influence that letter has when presenting an offer to a seller. And I can’t stress enough how a seller should require this letter when considering an offer. I like to call people without pre-approval letters “window shoppers”. Because without it, there’s really no proof they are ready and able to buy a house. Part of most contracts with an agent state “find you a willing and able buyer” as the agent’s responsibility. It’s tough to say an agent is finding someone who is willing and able if they haven’t verified a lending institution is willing to give them a mortgage to cover the price of the home. Get that pre-approval before you shop, and ask for it before you consider an offer.

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