INTEREST.COM

For house hunters, being "pre-qualified" for a mortgage may sound good, but getting "pre-approved" is far more impressive. It's like the differ­ence between an actor telling someone he's auditioned for a role, and telling him or her he actually landed the part.

"Getting pre-qualified doesn't really mean much," said Tom Cox, a real estate agent with Watson Realty in Bakersfield, Calif. "Some real estate agents will not even deal with people who haven't been pre-approved for a loan. This is especially true in hot real estate markets."

If the clients are only pre­qualified, there is no guarantee they can actually get a loan to buy the home they want. If they can't get a loan, everyone involved in the process has wasted their time: the buyer and the buyer's real estate agent who have been looking for the right house, and the seller and seller's agent who have been waiting for a solid offer.

Tb get pre-qualified, all that is needed is to give a loan of­ficer the information required for getting a loan: employer, job income, other sources of income, expenses, credit history, debt, and so on. The lender simply accepts the in­formation as true to offer an estimate of what the borrower probably could afford. There is no formal credit check involved, and the agent has no way to verify the data are correct.

To get pre-approved, howev­er, the lender checks to make sure that all the information is actually true: running a credit check and doing all the other work normally involved in ap­proving a loan. Thus, the real estate agent and the person selling the house know the buyer actually will have ac­cess to enough money to buy the house because a loan for "X" amount of money already has been approved.

But getting pre-approved for a loan does more than tell the real estate agent how much the buyer can borrow. It also provides a reality check for the buyer. Few people really know much they can borrow.

Getting pre-approved tells the borrower what their limit is and how much a monthly payment would be for a par­ticular loan. Knowing one's upper limit is the first step toward deciding how much would be a good idea to bor­row. Add a down payment and the borrower knows the upper limit of housing price that is acceptable.

"A lot of people will say money is no object, but it is. It always is. I know that I don't want to show people houses that they will fall in love with only to find that the homes are out of their price range. After that, when they see the homes they can afford, they might feel they are settling for sec­ond best," Cox said.

It's not just the broker who likes pre-approved clients.

"I know that if I was selling my own home and I had two of­fers, and one was pre-approved and the other wasn't, I would probably go with the one that was."

Cox said even though more people are becoming aware of the benefits of getting pre-approved,  only  about  10-percent of his customers cur­rently come to him that way; however, many of them will start the pre-approval process while they are actually house hunting.

Once the right home comes along, all the buyer needs to do after working out a deal is verify that the home is actually worth the sale price. That, obviously, is the one part of the process that cannot be done beforehand.

There are two other points to remember. One is the amount of time that lapses between getting pre-approved and actually finding the right home, and the second is what not to do during that time that might affect credit history.

"Once you have found the house, the lender will ask for the appraisal," Cox said. "Depending upon how long it's been since you were pre-ap­proved, the lender might also do another credit check on you to make sure that your credit rating and job status haven't changed."

Cox said he advises his pre-approved clients not to make any major purchases or other financial decisions between getting pre-approved and ac­tually getting their home and home loan. That means no new cars, big screen TVs, RVs, cabins, major trips, or any­thing else that could change a credit report, debt load, or debt-to-income ratio.

When shopping for a house, focus on the house. Don't start shopping for anything else. Worry about buying things for the house later.

Jim De Both is president of lnterest.com — a national publisher of mortgage rates and information.

DISCLAIMER:  This information has been reprinted for informational purposes to our readers.  Although the above information is deemed reliable, neither Bill Smith nor Liberty Realty assume any responsibilities, either expressed or implied, as to the accuracy of any information given in this report.