Pre-approval is a comprehensive process where the lender verifies the buyer's financial information, including credit history, income, and assets. Pre-approval provides a conditional commitment from the mortgage company to lend a specific amount, pending appraisal of the property.
Pre-qualification is an initial assessment based on self-reported financial information provided by the buyer. It gives a rough estimate of how much a buyer might be able to borrow but it is merely an opinion.
Despite the well-known advantages of getting pre-approved for a mortgage early in the home-buying process, many buyers remain resistant even to their detriment. Here are several reasons why:
Some buyers may not fully understand the benefits of pre-approval or may underestimate its importance. They might see it as an unnecessary step rather than a strategic move that can give them a competitive edge and streamline the home-buying process.
Buyers often perceive the pre-approval process as complicated and time-consuming. Gathering financial documents, filling out applications, and dealing with lenders can seem daunting, especially for first-time buyers unfamiliar with the process.
Potential buyers may fear that they won't qualify for a mortgage or won't get approved for the amount they need. This fear of rejection can lead them to delay or avoid the pre-approval process altogether.
The pre-approval process requires sharing sensitive financial information, which some buyers may be uncomfortable with. Concerns about privacy and data security can make buyers hesitant to initiate pre-approval.
Buyers who feel confident in their financial situation might not see the need for pre-approval. They might believe they will easily secure a mortgage when needed and therefore consider pre-approval an unnecessary precaution.
Some buyers may be waiting for the perfect moment to get pre-approved, such as when they have a specific property in mind or when they believe their financial situation will improve. This can lead to delays and missed opportunities.
The belief that mortgage pre-approval will negatively impact their credit score can deter some buyers. Although pre-approval does involve a credit check, the impact is typically minor and temporary, but this is not always clearly understood.
Procrastination and indecision can also play a role. The home-buying process involves many decisions and actions, and pre-approval might get pushed aside in favor of more immediate tasks or simply due to procrastination.
Some buyers believe that they can get pre-approved later in the process without any negative consequences. This assumption can lead to delays and complications, especially in competitive markets where pre-approval can be crucial for making a timely offer.
"Pre-qualification is the crucial first step in the home buying journey, providing buyers with an initial understanding of their borrowing capacity and setting the foundation for a successful and informed search for their dream home."
Among the benefits to buyers are enhanced buying power, competitive edge, negotiating power, streamlined process, confidence, and peace of mind. If there are potential issues identified early in the process, there may be time to cure them without delaying a transaction.
Pre-approval benefits the buyer directly as well as the seller by having a qualified buyer that can close the sale. Download our Buyers Guide and Buyers Agent Guide.
If you are interested in speaking with a trusted mortgage professional give me a call, I can recommend several including Frank Astemborski, who I have used personally a few times.