Are you a window shopper? Do you love walking through the mall imagining yourself in that very expensive outfit on that oddly human like mannequin? Or do you go in the stores and try everything on but never end up buying anything? You’re not alone. This happens all the time. The problem is you take that habit to home shopping as well. You like the idea of dreaming about living in a home and there is nothing wrong with that. If you love going to open houses and just looking around that’s great. If you have signed on with a Realtor and continue to do the same thing, that’s a problem. If you are using a Realtor to help you find a house, you need to get pre-approved. I don’t like to “window shop” with clients because I don’t want to waste there time. If they can’t afford a home, I won’t show it to them. As a Realtor, it’s not professional for me to do this because I don’t want to get their hopes up. They will think “Wow we can afford a house with a renovated kitchen and a swimming pool” when in reality, if they had been pre-approved, their Realtor would have been showing them houses that required renovations due to their budget restraints. Don’t put yourself in this situation. Get pre-approved.
When you are ready to get pre-approved, your first step should be finding a Realtor. A Realtor is capable of finding you the best mortgage broker and chances are they have a trusted broker that they recommend their client to use. There are several key factors to keep in mind when getting a pre-approved. First, there are things that you should bring to your pre-approval appointment to help the mortgage broker and will help make the process go quick and easy. Here is everything that you should bring with you to the pre-approval meeting:
- You should have a proof of income for at least 3 years, T4’s letters of employment, or a personal income tax return if you are self employed
- Personal ID
- Residence history for 3 years
- A letter from your employer stating length of employment
- Account numbers, location of accounts and investments
- List of all assets: vehicles, investments, retirement savings, jewelry and other real estate holdings and where the deposit will be coming from
- List of all liabilities: loans, credit card debt, vehicle debt, other mortgages, child support, etc.
Second, you need to think about the best time to get pre-approved. There are certain aspects of a pre-approval that are time sensitive. Pre-approval offers some benefits when buying a home. When you are pre-approved by a bank, they will lock you in at a predetermined interest rate this is called a “rate guarantee” that generally lasts between 90 and 120 days, depending on which lender you go with. This is not the case with all lenders though. Some lenders will have different time periods and others won’t offer a guarantee at all. The pre-approval process will measure your income against your debts, giving you a fairly accurate number that your lender will loan to you. Getting pre-approved is a great way to show your Realtor that you are a serious buyer. Most Realtors won’t consider showing a potential client houses if they haven’t been pre-approved, this is because they don’t want to waste your time or the time of the seller by having them leave the house for the viewing as stated previously.
Sellers also prefer clients who are pre-approved. If you are in a bidding war with multiple offers and your offer is the only one with a pre approval letter, you have a better chance of the seller taking your offer because there’s a less likely chance of financing falling through. Another reason to get pre-approved is because once it’s time to close the deal this can be done faster than those who don’t. When you put an offer in on a house that’s conditional on financing, it will generally take less time to get the final mortgage approval because you will already have a file started with the lending agency. It is important to remember that the amount that you are pre-approved for is not guaranteed. The only guarantee is the interest rate during the specified time period depending on your lender. Once you have put an offer in on a home, conditional on financing, the lender will have an appraisal done. This appraisal is to determine how much the house is worth to make sure that if the house is sold, the money from the sale can pay off the loan. Once this has been completed, you are taken through the final approval process of obtaining a mortgage. During this process, don’t take on any new debt from the time that you got pre-approved because you will likely qualify for less. You want to make sure that the number you were pre-approved for will be very close to the number that you will actually be approved for. When you are pre-approved, you do not have to buy a house for that amount of money. For example, if you get pre approved for $800,000, don’t think you have to buy a house for that amount. Also, your down payment isn’t taken into consideration for a pre-approval. If you have been approved for $500,000.00 and have a down payment of $50,000.00, your total budget would be $550,000.00.
Do not be fooled by pre-qualifications. They are not the same as pre-approvals. Loan pre-qualifications are used by lenders to attract clients and only provide inaccurate information. This is a waste of time. A pre-qualification only looks at financial matters of the current year, such as present income, expenses, and cash savings for a down payment. The lender only provides an estimate of approximately how much money they may lend based on the unsupported information you offer. Pre-qualification doesn’t lock you in for an interest rate either. They are fast and cheap, only taking approximately 15 minutes. The saying “you get what you pay for” fits perfectly here: you walk away with a piece of paper that is better suited to be used as a fire starter.
If you are thinking about buying a house in a year or so there are a few things you can do to prepare yourself to get the best pre-approval possible and in turn the best mortgage and rate possible. Start off by making sure you have good credit. This can be done through an online credit check. Here are some ways to have a good credit score:
- Pay off all of your bills on time and in full
- Make sure your credit cards are payed off in a timely manner
- Try and make sure you have all other debts paid off such as car loans, student loans
Once you have your finances under wraps, start to save for a down payment. The bank will basically look at your assets and debts against each other. If your assets are worth more than you owe, the lender will pre-approve you with a better interest rate. This is to make sure you have a good credit score. Your credit score is determined by analyzing your record of paying debts. Things that are considered for a credit score are:
-Public records pertaining to credit (to show if you have ever declared bankruptcy)
-Outstanding balance against available credit limit (What is left to pay on loans and mortgages)
-The age of delinquent accounts (basically means how long have you had a credit card)
-Recent inquiries generated by a borrower seeking credit (If you have been looking for multiple loans it may raise red flags to other lenders)
If you keep all of this information in mind, you will be able to enjoy the process of buying a home a lot more. You won’t have to worry as much about finances and your Realtor will be able to find you the dream home that fits your budget. Now you’re ready to go out and get the first step completed to buying your dream home.
Congratulations and Good luck!!
Hometown Hero Real Estate 