Mortgage

Pre-Qualified vs. Pre-Approved: Which is Better for your Buyer?

By Joe Lins
August 21, 2024

In the home buying process, having your buyers understand the difference between being pre-qualified and pre-approved can significantly impact their ability to secure the home of their dreams. While both terms are often used interchangeably, they represent different levels of financial readiness and influence how seriously sellers will consider their offer.

During a recent episode of Market Matters, I talked with Ryan World from World Mortgage Group about this topic. Here’s what your clients need to know about pre-qualification and pre-approval and why one might be better for them in today’s real estate market.

Ryan World and Joe Lins – Market Matters Interview

What is Pre-Qualification?

Pre-qualification is often the first step in the mortgage process. It involves a simple, informal conversation between the buyer and the lender. According to Ryan World, this step gives them a basic idea of what the buyer might be able to borrow based on the information provided, such as income, assets, and debts. However, it’s important to note that pre-qualification doesn’t involve any formal verification of their financial status.

“Pre-qualification is just a verbal conversation,” says World. “I’m not a huge fan of it because it doesn’t give me everything I need to figure out how high of a sales price they qualify for or what loan programs they qualify for.” In essence, pre-qualification is an estimate—it’s helpful for getting a rough idea of their buying power but lacks the certainty that a more formal process would provide.

What is Pre-Approval?

On the other hand, pre-approval is a much more thorough process. It involves a detailed review of the applicant’s financial situation, including a credit check, verification of income and assets, and a more in-depth assessment of the applicant’s ability to repay the loan. This process results in a pre-approval letter, which the applicant can present to sellers as proof that they are a serious and qualified buyer.

“Pre-approval is much stronger,” explains World. “I look at their income documents, I look at their asset documents, and then we sit down and go over what they qualify for. This is all accurate stuff.”

Having a pre-approval letter in hand gives them the confidence to make offers and makes that offer more attractive to sellers. This can be the difference between securing the home they want and losing out to another buyer in competitive markets.

Why Pre-Approval is Often the Better Choice

When it comes to buying a home, pre-approval is typically the better option. As World points out, sellers are more likely to favor buyers who have been pre-approved because it shows that they are financially prepared to make a serious offer. Without pre-approval, they may struggle to compete against other buyers who have taken this step.

Moreover, pre-approval allows them to act quickly when they find the right property. Instead of waiting to go through the approval process after making an offer, they can move forward with confidence, knowing that their financing is already in place.

Final Thoughts

At Century 21 Discovery, we place a strong emphasis on strategy. Whether your clients are buying now or planning for the future, getting them pre-approved should be a key part of their homebuying strategy. It strengthens their offer and gives them peace of mind, knowing exactly where they stand financially.

If your client is considering purchasing a home in the next year, it’s never too early to get them pre-approved. If you need to connect them with a trusted lender, I highly recommend Ryan World and his team at World Mortgage Group. Here’s their contact info: Ryan World: 714-569-3636 Ext. 2

Joe Lins

About the author: Joe Lins is President, CEO and Co-owner of CENTURY 21 Discovery. If you are interested in becoming part of the CENTURY 21 Discovery team or would like more information about our services, training and coaching we provide, contact Joe at 714.626.2069.

What’s Going On With Mortgages?

By Joe Lins
July 21, 2024

Recently, I had the pleasure of speaking with Ryan World from Gem Mortgage. We discussed the current mortgage landscape and what potential homebuyers need to know. For agents reading this, I encourage you to share this with your clients. Here’s a recap of what we covered in that conversation:

  • Different Loan Programs and Down Payments
  • Jumbo Loans
  • Current Interest Rates
  • Buying Now vs. Waiting to Buy
  • Having a Buyer Strategy
  • Why a Pre-Approval is Important

Different Loan Programs and Down Payments

Most people opt for conventional loans these days when it comes to loan programs. However, there are several options available:

  • VA Loans: Zero down payment.
  • FHA Loans: Requires a 3.5% down payment.
  • Conventional Loans: As low as 3% down unless it’s a high balance, which needs 5% down.
  • Jumbo Loans: Typically require around 20% down, though you can put less down for a higher interest rate.

Understanding Jumbo Loans

A jumbo loan is any amount exceeding the national conforming loan limit, which is currently $766,550 for Fannie Mae and Freddie Mac. These loans usually have better interest rates but are more challenging to qualify for.

Current Interest Rates

Interest rates are currently in the high sixes to low sevens. The market is quite volatile, and rates can change quickly based on economic indicators and Federal Reserve announcements. Recently, the Consumer Price Index released favorable news, causing a slight improvement in interest rates. However, market fluctuations are constant, and rates can shift based on new information.

Buying Now vs. Waiting for Lower Rates

A common question is whether to buy now or wait for interest rates to drop. Ryan suggests buying now, even with higher interest rates. The rationale is that if rates drop in the future, you can refinance. Waiting for lower rates could lead to increased home prices due to higher demand, making it more challenging to find a desirable property at a reasonable price.

The Importance of a Buyer Strategy

Buyers need a strategy, and one of the most crucial steps in buying a home is hiring the right REALTOR. A knowledgeable, competent real estate agent can guide you through the process to achieve your goals. Having a strategy in this fast-paced real estate market is important, and the right agent can help with this. Our CENTURY 21 Discovery agents are trained for exactly this!

Why Pre-Approval Matters

Getting pre-approved is essential. It helps you understand your budget, manage your expectations, and gives you confidence when working with your real estate agent as you start your home search. Knowing your financial standing upfront prevents disappointment and ensures you focus on homes within your price range.

Contact Information

Those interested in learning more about mortgage options or starting the pre-approval process can contact Ryan World at Gem Mortgage. His phone number is 714-569-3636, extension 2.  

Charge on!

You can watch the video of our conversation HERE.

You can listen to the conversation HERE.

Joe Lins

About the author: Joe Lins is President, CEO and Co-owner of CENTURY 21 Discovery. If you are interested in becoming part of the CENTURY 21 Discovery team or would like more information about our services, training and coaching we provide, contact Joe at 714.626.2069.