As any real estate professional knows, the lending landscape is always changing. While there were a number of years when it was very easy for homebuyers to secure a mortgage loan, mortgages are now under more scrutiny than ever, with tight regulations in place to help keep banks sound. Because most of your home buyers will need to take out a mortgage loan, it’s important that you have a working understanding of the process.
The Difference Between Pre-qualified and Pre-approved
There are differences between getting pre-qualified and getting pre-approved for a mortgage. It is important for you to be aware of these.
Getting pre-qualified for a mortgage is an initial check-in to get a preliminary estimate from a lender of the mortgage your client will probably qualify for. It helps guide the home search process by narrowing down to the range that they will likely be able to borrow. It’s the first hurdle a borrower must clear.
Getting pre-approved for a mortgage happens further down the road in the lending process. It requires an even closer look at your client’s income, debts, assets, and credit. While still not an assurance of obtaining the mortgage—pre-approval is the second hurdle in the process, and brings the client one step closer to a successfully closed transaction.
Why It’s Good to Have Pre-qualified Clients
While getting your buyers pre-qualified for a mortgage does not carry the same weight as getting them pre-approved, it does serve as the initial guide post for making sure that you are selecting homes that are realistically in your client’s price range. You may of course have to narrow home selections even further once the financial options and constraints become clearer, but it’s a great place to start.
One of the most frustrating things for agents is working with buyers who have not yet been pre-qualified for a mortgage. You take buyers to see a number of homes, only to find out that they are not likely to get approved for the mortgage that is required to purchase those homes. This is why it’s helpful to be working with pre-qualified clients from the get-go, or for you to urge your buyers to get pre-qualified early in your business relationship.
Advice You Can Offer At This Stage
So then, as an agent, what advice can you give at this stage? How can you help raise your clients’ chances of success at the pre-qualification stage? Let’s look at three effective pieces of advice for your clients at this point in the process.
#1. Recommend a Credit Review
One of the first steps toward getting pre-qualified, as well as knowing the types of houses your buyers should be looking at, is for them to know where their credit rating stands. If not already done so, recommend that your buyers review their credit report and check their FICO scores to uncover any potential issues or mistakes, and determine if they need to build their score before searching for a home.
#2. Urge Them to Fix Credit Errors Quickly
If mistakes are found in their credit history or on their credit reports, your buyers will want to resolve them before moving forward with getting pre-qualified for a mortgage. Have them contact the credit reporting agencies immediately if any errors are found. Mortgage companies that want loans to close on time may offer to pay credit agencies to update your buyer’s credit report quickly with a rapid rescoring service.
#3. Remind Them to Be Realistic
It’s not uncommon for lenders to pre-qualify or pre-approve applicants for a mortgage that’s more than they can afford. Make sure that your buyers aren’t letting lenders dictate how much they spend on a home. Lenders determine pre-qualifying amounts based solely on income and credit report information, and don’t factor in day-to-day expenses such as daycare, car payments, groceries, insurance, and more. Rather than purchasing a home for the maximum amount allowed by the lender, make sure your buyers are making a smart investment by purchasing a house that is within their means.
As an agent, although you are not a loan officer, you still play an important role in the mortgage process. To learn more about what you need to do to help keep the sale on track, check out our course Guiding Your Homebuyer Through the Mortgage Process today.
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