Buyers: Increase your negotiating power with a pre-approval

Key insights:

• A lender will issue a pre-approval letter after an analysis of a potential buyer's credit and financial history.
• This pre-approval letter explicitly tells real estate agents and home sellers how much a buyer can responsibly borrow in a home mortgage loan.
• Pre-approvals can help buyers in negotiations because they show that the buyer is prepared and qualified to purchase a home in a certain budget.

Did you know that you can gain a distinct advantage over other homebuyers by arranging for financing even before you put an offer on a home? Read on for more insights on how a pre-approval can help you compete in a tight market.

What is a pre-approval?

As a homebuyer, you may have heard of getting pre-qualified or pre-approved for a mortgage. In a pre-qualification, a would-be buyer submits their financial and credit information to a home mortgage company (also called a lender). The lender quickly analyzes what was provided and estimates the total loan amount for which that buyer would likely qualify. Importantly, the lender does not verify that the submitted information is accurate.

A pre-approval is a more official and involved process where the lender does verify credit information and financial documents provided by the potential buyer. These documents often include, but are not limited to:

• Income verification (pay stubs)
• Employment W2s
• Previous year's tax returns
• Bank statements
• A full credit report

After reviewing and verifying this information, the lender can issue a pre-approval letter. This pre-approval letter explicitly tells the buyer, real estate agents and home sellers how much that buyer is eligible to borrow — and states that they have acceptable credit to be approved for a home mortgage loan in that amount.

As you may expect, a mortgage pre-approval is considered more trustworthy than a mortgage pre-qualification.

READ: Pre-approval vs. pre-qualification: What’s the difference?

Is a pre-approval a guarantee?

Your pre-approval letter is based on the information you provided the lender at a certain point in time. If you were to lose a significant amount of money or damage your credit shortly after your pre-approval was issued, you may no longer be approved for that amount when it comes time to buy.

For this reason, a pre-approval letter cannot be considered a guarantee that you will be approved for a loan.

How can a pre-approval boost my negotiating power?

The goal of everyone involved in a real estate transaction – from the buyers and sellers to the real estate agents working with them – is to close the deal effectively and with minimal mishaps.

A pre-approval shows that you are not only prepared to apply for a loan, you are also considered to be a responsible loan applicant by your preferred lender. This can give you an edge over buyers who have not been pre-approved and could help sway the sale in your favor if a seller is reviewing multiple offers with similar terms. A pre-approved buyer presents less risk of being declined for a loan than a buyer who has not undergone that extensive process.

Ready to get pre-approved?

There's no better way to prepare yourself for buying a home than to speak with a lender about getting pre-approved. The experts at Prosperity Home Mortgage are here to provide no-strings-attached, honest insights about your buying and borrowing power.

Reach out today to get in touch with a lending expert.

Prosperity Home Mortgage is an affiliate of Edina Realty. See Affiliated Business Arrangement Disclosure Statement.