What harm can it do by just looking?
As a Realtor, I get calls all the time from people that “just want to see a home“. When I ask them if they have been pre-approved they tell me “I will talk to a lender when I find the home I want to purchase.” I did that once early in my Real Estate career, it cost me the buyer in the end.
That buyer wrote an offer and we got it approved for $150,000 sale price. By the time they spoke to the lender, they were in for a huge shock the only way they were going to get that home was if they put down the difference; because they only qualified for a $80,000 mortgage. They did not have that money and lost the home. They stopped their search right after that and I never heard from them again. Found out from the lender that their credit scores really hurt their ability to purchase and it would be two to three years before they would be able to purchase a home.
There is a reason why we ask for at the very least a pre-qualification letter
Not only does it help me know if they are serious, I need to because the home seller requires it. It is a tough thing to tell someone no. I know, I fight the urge to say yes, when I must say no to buyers that refuse to be pre-qualified and then pre-approved before they start their home search. Everyone of them has a great story… The harder they resist the more likely they are not really ready to purchase. I am faced with a difficult decision, drop everything to show an unqualified buyer a home, or prepare for the buyer that I have pre-qualified and showing homes later that day?
Too often I have seen deals fall apart in the 11th hour because of the financing. It is my job to educate each buyer what the process is and although my services are free to them, I don’t get paid unless a deal closes. It does neither of us any good to be looking at the wrong homes or at homes at all if they client is not qualified. It is just not good business. It is more important to me that you understand the process from:
- Pre-qualification vs Pre-approval
- Searching for homes
- Selecting an attorney
- Negotiating the contract
- Home inspections
- Closing expenses
- What to expect at the closing
- What to expect your first year of owning a home
I have a responsibility to each home seller that when I show their home, that I am showing it to a qualified home buyer. Qualified is the key word. I know of homes that I have to have the person qualified through their lender in order to show the home or their lender needs to speak with my clients lender before I can show the home.
Sellers don’t want to have just anyone through the home, they want to know that who we bring through the home are qualified and ready to purchase.
Again, here is where you need to understand the process. When I have a buyer ready to write a contract, I pick up the phone and call the listing agent, many times, they will tell me what is needed to get the deal done. I require that if an offer is to be presented, it must be accompanied by a pre-approval letter. I educate my sellers why this important and they want to know that is coming with an offer.
But my responsibility to you the home buyer is even more important. In today’s highly competitive market we have to present solid offers and deals take upwards of 60 days to complete. I will tell you that each deal that I have done where the buyer has pre-qualified and then pre-approved for their mortgage before we started to look at properties had a much easier time of it.
Why is that? Well half the work is done up front, you don’t have to do all the frantic gathering of documents and such. It is already done by the time we start looking at homes. By the time that we write the contract, I have everything I need to present YOU, the buyer, in the best possible light. You have looked at a sales contract before this moment and we have gone over it prior. Not only will you have your mortgage pre-approved, you will have your attorney already and we know who you will be using for a home inspection. That gives me the ability to take those contingencies off the table rather quickly. Making you a more desirable buyer.
What does it take to pre-qualify?
Let’s talk first about the most popular loan today the FHA loan. According to the FHA website:
FHA home loans were designed to help Americans fulfill their dream of homeownership and are therefore the easiest type of real estate mortgage loan to qualify for. Among the home loan options available that require a minimal down payment, FHA loans are the most popular. In fact, the FHA loan is the most flexible type of home mortgage loan to qualify for.
- Steady employment history, at least two years with the same employer.
- Consistent or increasing income over the past two years.
- Credit report should be in good standing with less than two thirty day late payments in the past two years.
- Any bankruptcy on record must be at least two years old with good credit for the two consecutive years.
- Any foreclosure must be at least three years old with good credit for the past three years.
- Mortgage payment qualified for must be approximately 30 percent of your total monthly gross income.
- If you can answer YES to these statements you should have no problem qualifying for an FHA home mortgage loan.
While prequalifying for a loan doesn’t necessarily guarantee that you will be able to purchase the home of your dreams, it does help you and potential lenders know your borrowing power and what you can afford in terms of a monthly mortgage payment. Prequalifying for a loan simply means that you have taken an inventory of your income and assets and submitted them to your potential lender. Based on that information you should be able to qualify for a home mortgage loan
Who do I go to?
I would start with your bank or credit union. Call the mortgage department. I have several lenders that I have worked with in the past and each would be happy to assist you with your pre-qualification. You are not bound to work with them, they just give you the baseline of what you can afford. I strongly suggest that you shop mortgage professionals, interview them and ensure that you are comfortable with their rates and services.
How About One Of These Homes?
All Statistics are gathered from the Buffalo Niagara Association of REALTORS®.
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