Photo: James White
Photo: James White

Buying a house? This is why getting pre-qualified is important

By Opinion Time of article published Jul 24, 2020

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By Mark Bruyns

One of the most common myths when buying a home is that you should find a home before getting pre-qualified for a loan.

Before Covid-19, estate agents could show a home or several homes to a buyer whether pre-qualified or not. With the implementation of social distancing and the health and safety risks associated as a result of the global pandemic, it is no longer viable to show homes to clients that are not pre-qualified.

Some of the most common things buyers say who do not want to first get pre-qualified for a home loan, include;

"I'm going to wait until I find the right home to speak with a home loan company."

"I don't need to speak with a home loan company first; I'll be able to get a home loan, no problem."

"I'm just looking at homes right now."

For estate agents it’s a smarter option to first request a loan pre-qualification certificate from a potential buyer before showing a selection of homes. Some key reasons for this approach are listed below:

Estate Agent Safety

One of the biggest reasons to request a loan pre-qualification prior to showing a property is to ensure your personal safety. An Estate Agents safety has been a topical subject in the news and now there is an added risk.

You may ask yourself, "How does requesting a pre-qualification certificate provide any safety for the Estate Agent?" Pre-qualifying is a way of verifying information about the buyer, such as their identification, their job history, and other pertinent information, if it becomes necessary to track and trace them. If a prospective client is in the market to buy a home and cannot supply a pre-qualification letter when you request it, chances are you should not be wasting your time or be putting your health at risk showing them homes. Remember, it's a safety concern.

Pre-qualification, Saves Time & Frustration

Another big reason Real Estate Agents should request potential buyers to pre-qualify for a loan before showing homes to them is because it provides proof of their ability to obtain finance. The reality is that not everyone in the current economic climate can get a home loan approved due to banks being more “risk averse” at this time, and the current strain on household incomes.

Serious buyers should have no problem with first obtaining a pre-qualification approval. Getting one does not take much time; in fact, one can pre-qualify within minutes after getting all the necessary information.

Most people are busy and are not prepared to take the unnecessary risk of getting infected with the Corona virus. This is another key reason why you should insist on pre-qualification before showing buyers homes, you will be limiting your time to qualified buyers and reducing the risk of spreading Covid-19.

A pre-qualification provides a prospective buyer, and the estate agent, information as to what price range your search should stay within.

It makes no sense for a buyer who pre-qualifies for a R 900,000 home loan to look at homes listed for R 1,500,000 if they don’t have the necessary deposit.

There are not many homeowners who are going to accept an offer for R 600,000 less than their asking price, period.

An estate agent who works with a buyer and shows them houses before having them obtain a loan pre-qualification is doing a disservice to themselves. What can end up happening is your client finds out they cannot afford the home they fall in love with which leads to wasted time, frustration, and heartbreak.

Strengthens Negotiation Ability

Leading estate agents will request a pre-qualification before showing a buyer a home because it strengthens the agent’s negotiation ability on behalf of their client. Depending on the local real estate market conditions, if a buyer is attempting to buy a home in a seller's market, it's critical to have a pre-qualification before looking at houses.

A buyer who has done a pre-qualification has a distinct advantage over buyers who decide to look at homes without a pre-qualification. If a seller receives multiple offers on their home, they are more likely to select an offer to purchase from the buyer who has already been pre-qualified for a home loan.

To win in a multiple offer situation, it's paramount your client has an approved pre-qualification certificate.

Sellers May Require It

In the time of Corona, astate Agents should request a home loan pre-qualification before showing homes to a buyer.

The fact is that sellers may require it. With the health risks brought on by the Covid-19 crisis, homeowners do not want buyers walking through their home who have not spoken to a home loan provider, as they do not want to waste their time or risk their health unnecessarily.

Sellers also do not want unqualified buyers walking through their home, which was common practice at real estate open houses prior to the world wide Covid-19 pandemic. There are many pros and cons to open houses in real estate, and certainly one of the drawbacks is there is no ability to screen potential buyers who are visiting an open house.

In addition to requesting a pre-qualification from buyers before accommodating a showing as a result of the pandemic, most sellers require a pre-qualification with any offer to purchase. An offer to purchase without a pre-qualification is only as good as the paper it is written on as it's nearly impossible for the seller to honestly know if a buyer will be able to obtain the necessary loan finance.

It's important to note that even though a buyer may have a pre-qualification, there are certain situations where a buyer can be denied their home loan even after being pre-qualified. The likelihood of this happening is slim, but it's essential that buyers and sellers understand that a pre-qualification is not a guarantee that the final loan will be approved by a lender.

Buying a home is big deal! There are specific steps that need to be taken to be successful in purchasing a home. Requesting a trusted pre-qualification certificate from a buyer before showing houses is the responsible thing to do, and the best possible way to serve the interests of both the buyer and seller.

“Showing homes to buyers without having a good indication that they can afford it doesn’t make sense. Shopping for a home with a buyer before they have been pre-qualified for a home loan is like going to dinner without a wallet. Your buyer may have the desire to buy, but they lack the ability.”

Mark Bruyns is the CEO of WeApply Home Loans

PERSONAL FINANCE

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