Imagine this scenario: you decide you’d like to buy a piece of real estate. You find an agent you want to work with, and that agent hopefully informed you during the beginning of this process that you should get pre-approved (not just pre-qualified) for a home loan. In your head, you are thinking that this is a hassle and putting the cart before the horse and you’ll shop for a house once you find a home you would like to buy. After months of looking, a home comes up that fits all your desires. You write an offer on it right away – and – surprise! The right home for you turns out to the right house for other buyers. You end up in a multiple offer situation. Your agent submits your offer right away, but then calls you several hours later to say that the seller went with another offer, because that other buyer was actually pre-approved for a home loan and you were not.
Do you think this scenario is unlikely? Unfortunately it isn’t. This situation is extremely common. If the home is perfect for you, it is likely perfect for many other buyers out there and you will likely face competition when the right one comes up.
When you do find the right piece of real estate and decide to write an offer, the seller will consider your offer much more serious if you have attached a copy of a pre-approval letter. This letter tells the seller that a loan officer has verified your ability to buy their home. Even without another buyer to compete with, a seller is going to be very hesitant to accept an offer from a buyer without this documentation.
Getting pre-approved for a home loan right away has other advantages. Sometimes things come up on your credit report which you weren’t aware of, which can dramatically impact your ability to buy, or even what interest rate you get. Knowing this information up-front gives you the possibility of fixing anything that might need your attention, or taking measures to improve your credit score (such as paying off or closing credit cards or restructuring student loans).
Of course, getting pre-approved right away will give you a more accurate idea of how much home you can afford. You might be amazed with the low interest rates that you can afford a more expensive home, or, conversely, you might be surprised that Private Mortgage Insurance premiums are higher than you had expected. You will not have an accurate picture of this information without speaking to a loan officer.
Shopping around early will also help you reveal the best interest rate with the least amount of fees. Just be sure, when you begin the process of looking at various terms of home loans, that the loan officer does not pull up your credit report *until* you are sure what loan you would like to go with. Each time your credit report is pulled, your credit rating can be lowered significantly, which could damage your affordability.
Also know that loan officers vary in their experience and reliability. I’ve had many disasters working with unfamiliar loan officers that could have been avoided. For instance, I’ve had loan officers who have said that the buyers are approved for a certain amount, only to find out once we’ve gotten into the process that the buyers are actually qualified for significantly less.
If you need a referral to a loan officer to get your pre-approval started, please contact me. I’ve got several recommendations of mortgage brokers that I have worked with reliably for many years. Happy house hunting!