It seems many home buyers feel they already have a “good enough” idea of what amount of mortgage they qualify for, so they don’t feel the need to consult a mortgage professional in advance of their home search. Or they use some quickie online tool that helps tell them what they are qualified for, which are really not thorough enough and don’t take into account all the complicated new rules.
And some people have champagne taste and are on a beer budget, and need to be careful in determining how much they can afford to spend on a home.
I can’t say this loudly enough, DON’T WASTE YOUR TIME OR YOUR REALTOR’S TIME looking at a single home until you have had your finances thoroughly analyzed by a seasoned mortgage professional. And here is why:
-Even before the recent crackdown by banks and underwriters in qualifying loan applicants, it was easy to be mistaken by a substantial margin if you tried to guess how much you qualified for on your own.
-Minimum credit scores have gone up quite a bit in the last year or so, and if you do not have a certain credit score you may not even be eligible for a loan at all.
-Even if you have good credit, there are so many new or reinstated restrictions and complicated guidelines in getting a loan, then I can even put them in one blog post, so I will not try. Just trust that you absolutely have to have a mortgage professional look over your credit report, income, assets and liabilities.
-I had a potential client call me last year and wanted my help in getting them a loan because they put a contract on a house without knowing whether or not they could really get a loan, and in that contract they waived their financing contingency and they waived their appraisal contingency, and they put up a $50,000 deposit. When their original lender could not get them their loan, they turned to me panicked because they were going to lose their deposit unless they got a loan. I could not get them one. I’m not sure what happened to them…
-I had a client almost 2 years ago that had a 30% down payment, very high credit scores, and made a lot of money at good jobs. They contracted on a home without talking to me, and when they came to me and told me that all of their money was from a family gift, that was a problem, because you have to have a least 5% of the down payment of your own assets. We worked around this issue, but it created a delay and a lot of headache.
I could cite mortgage horror stories for another few pages, but I hope you get the point that it is very complicated to get a mortgage now, and you absolutely must talk to a mortgage professional first. Let them pull your credit report, document your income and assets, and determine your debt ratios and the maximum amount you can qualify for.
Otherwise, you are possibly wasting your own time, your Realtor’s time, and a seller’s time. Some people that do go through the pre-approval process want it to be as painless as possible. They simply want to give their Social Security number, a few financial details, and expect a complicated process to be boiled down to a few minutes. It is usually not that easy, and everyone should prepare themselves to do whatever they need to do to get pre-approved in advance, and to offer up whatever documentation is needed to secure a valid pre-approval. A pre-approval you get without doing much work for it is probably not very realistic, and won’t go over well with a smart Realtor representing a seller who wants to know you can “really” deliver on your promises of getting financing and going to settlement.
Put yourself in the shoes of the sellers. If you were a seller and were about to accept an offer from a buyer, wouldn’t you want as strong a pre-approval letter as possible, to make sure you were not taking your house off the market for 30-60 days only to have to put it back on again after having wasted time with buyer’s that ultimately could not get a loan?
It will save a lot of time and heartache in the end, and possibly some money.