One of the first things you need to do when you are considering buying a home is to determine how much home you can afford. What this means, really, is how much money will the lender allow you for your loan. An outstanding way to do this is to either get pre-qualified for the loan amount or (better yet) get pre-approved for the loan amount from the lender. There is a difference between pre-qualify and pre-approve, and this article will examine both of those.
Pre-qualification
Pre-qualification is a little like a practice run through the loan application process. You will supply the important details of your credit and employment history to the lender and the mortgage lender will use those details to determine how much money you can afford in your loan. This is only an estimate, of course, but it gives you a very good sense of how much house you should be looking for, based on price. The pre-qualification process may take only a few minutes, or a few hours at most, and there is usually no charge for this service.
It is good to keep in mind that even though a pre-qualification is not binding on the lender it can be used as a very good indicator to the seller that you are serious and that you are creditworthy. The reason pre-qualify results are not binding to the lender is that your details have not yet been verified. However, if the information that you gave to the lender is true and accurate, you can expect that your loan will be approved for around the amount that you were quoted by the lender.
Pre-approval
Pre-approval may begin with pre-qualification but it goes further. In pre-approval, the lender will verify your information. The lender may contact your employer, your bank and other sources to verify your income, assets, credit history, and current debts. The lender will then issue you a letter stating that your mortgage is approved for a certain amount of money within a certain amount of time. When you show this letter to sellers they know that you all but have the money in your pocket and they will be much more willing to negotiate with you than with someone who walks in empty handed.
Another benefit to pre-approval is that you know, up front, the amount of the loan that you can get from the lender. This may allow you to look at more homes, some of which you may not have believed were in your price range. It also gives you great leverage when making a deal with a seller. If a seller's price is just a bit more than what your loan letter says you can get, he or she may be more willing to drop the price to match your loan limit. All in all, being pre-approved for a home loan is a great way to get started.
It should be noted that in some cases, you may be charged a small fee for pre-approval. There may be fees to cover the cost of your credit reports and your application.
An important side note: If your financial circumstances change before closing, make sure you notify the lender, as your pre-qualification or pre-approval results may no longer be valid.
Newbie real estate investors spend a lot of time running. It's the nature of the beast. There's an air of excitement and exuberance. You get a lead and you want to see that property now. Not now, but right now. The potential seller says to you, "Just drive by and let me know what you can do for me." If you do that, you are definitely still a newbie. No one will have to teach you not to do this. It only takes a few times and you will learn quickly on your own. Such forays are a waste of time and time is money.
The smartest way to run your real estate investing business is to prequalify the leads and do it quickly. If you are marketing correctly, the leads will be coming in. The more leads you have coming in the more quickly you will have to move through the prequalifying process. Do this on the phone before you ever get into your car to look at a property.
List of Prequalifying Questions
Create your own list of prequalifying questions that you want answered. As you ask the questions (on the phone), draw your potential seller into a conversation and listen closely to their comments and answers.
Usually you will begin by asking about the property. That's fine, but a house is a house. What you really need to know is where is their pain. Do they want to sell this property; or do they need to sell this property? You guessed it, the latter is the one you are looking for.
Motivated or Unmotivated?
Always remember - it is not your job as a real estate investor to motivate an unmotivated seller. It is not your job to beg or plead with this person. Your job is to sort out as quickly as possible those who are not motivated to sell.
The more unmotivated sellers you try to deal with, the bigger your discouragement will grow. A newbie real estate investor can only take so much rejection. Soon you will be convinced there are no motivated sellers anywhere to be found and you'll be ready to quit. Of course that is not true. But that is the reason why unmotivated sellers must be removed quickly from your stack of leads.
Discover their Situation
Once you have talked to the potential seller about the house, turn the conversation to their situation. You want to know why they want to sell. You must ask! And once you ask, you must listen. You will hear a wide variety of stories - medical reasons, business failure, divorce, transfers, a death in the family. You will hear it all.
Now that you have pinned down their motivation, move on to other questions such as:
- Do you have a price in mind that you are asking for the property? - What will you need to make it worth your while to sell the property? - If someone were to buy your property, how much cash would you need to close quickly? (This question will bring some interesting answers. Sometimes they only want to get out with a little moving money.)
Educate Your Prospects
Realize ahead of time that many sellers expect you to take the time to drive by the property, take the time to research the comps, and then take the time to visit with them personally. This is what realtors do and that's what they have come to expect. You must educate them differently.
They will be surprised that you are not begging for their business. And many who refuse to work with you at first, if you follow up in three to six month, you will find they have moved from wanting to sell to needing to sell. Now they fit your criteria.
Don't throw away that lead information. It pays to be patient; it pays to follow up.
Conclusion
The sooner you learn to prequalify all the leads that come into your real estate investing business, the quicker you will move from wasting time to having a deal. This is one area of doing business that must be learned early and must be learned quickly.
Both Peter Kenny & Iman Yusef-yahya are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Peter Kenny has sinced written about articles on various topics from Credit Cards, Finances and Best Money Market. Peter Kenny is a writer for The Thrifty Scot, please visit us at and. Peter Kenny's top article generates over 368000 views. to your Favourites.
Iman Yusef-yahya has sinced written about articles on various topics from Tax Attorney, Finances and Real Estate. Iman Yusef-Yahya finds some of the very best below market deals in the country. Find out how you can to these below market deals now. Iman Yusef-yahya's top article generates over 2900 views. to your Favourites.