Pre-qualification on loans

11 Replies | Los Angeles County, California

@Cristine M. If you are serious about looking at properties, a pre-qualification will at minimum give you an education of how qualified you are to purchase. If you are primarily just browsing then there is no need to take the hit on your credit. 

Once you are qualified and working with an agent then those are generally a required part of writing an offer along with your proof of funds and your actual offer. 

@Cristine M.

Supposing you are selling your house for 1,500,000. You receive 5 offers below. Which one will you select?

A) 1,550,000, no realtor, no bank approval letter. Close in 30 days.

B) 1,300,000, cash offer. Close in 5 days.

C) 1,450,000, no loan contingency since fully underwritten and approved already. Close in 15 days.

D) 1,500,000, 21 day loan contingency. Close in 40 days.

It’s extremely important, especially in California, to prepare your financing in advance before shopping for a house.

This is because most offers were competing against in California are cash offers, and the only way to compete with cash, is by offering a higher price with a fast two week closing.. And the only way to do that, is by getting a fully underwritten loan commitment upfront before you shop for a house.

Not just a “preapproval letter” but an actual loan commitment which means an underwriter approved the loan. This allows you to waive loan contingency on your offer and close 3 weeks faster than someone who hasn’t already gone through that process.

The competitive advantage here is huge… Because you can have and times get a purchase price excepted for 10 or $20,000 less than your competitor who requires a 40 day closing…

Time is money, especially to sellers who are under contract and purchasing another house and are dependent on the sale of their departing residence to buy the next house.

@Cristine M.

Getting pre-qualified allows you to know what purchase price you can go up to. They are good for 90 days, so wait until you are ready to start looking at properties. But, I would recommend getting pre-qualified prior to looking, so you know what properties you should be looking at.

Originally posted by @Cristine M. :

How important is it to be pre-qualified on a loan and/or preapproved for residential property deal (specifically single-family home)?

 No Realtor worth their salt is going to show you more than 1 house without a legit full doc financing letter, so there's that...

I'll agree with the posts above.  Just as price is usually the determining factors to get buyers to see & make offers on your home,  sellers should feel very confident when they sign and execute the contract that the buy CAN indeed close. 

If a house goes Option pending, then comes back on the market once or even twice, that house will start to appear as damaged goods, whether that's accurate or not.   That's no bueno.

@Cristine M. It's important. First, it indicates how much you can qualify for and as such know the affordability. Second, it demonstrates to others that you are able to close. Good luck! Are you looking into acquiring this SFR for investment?