There is a debate in the real estate world as old as the chicken or the egg. This debate is a little one-sided though, with realtors seeming to be on one side and homebuyers on the other. The question: Which to do first: find the home or get prequalified? I did a pretty sophisticated polling of this which consisted of asking every realtor I ran into what they thought. Not one suggested that they would prefer to work with a client that did not get prequalified. In fact, the only time I have heard anyone say that someone should find a house first it was on a Facebook post and even then, the realtors were chanting prequal while some brave people tried to justify the opposing side.
I will always be a firm believer of getting prequalified and here are five reasons why:
1. Check out your credit - Credit bureaus are run by humans with computers. They receive their information from other companies run by humans with computers. This makes them susceptible to make mistakes just like anyone else. Where your blunder may have been mistaking LOL for Lots of Love, such as “I’m sorry your dog died, LOL” a credit bureau’s mistake can cost you thousands of dollars and make it so you can’t get your home. Even if you know you can qualify for a loan it is best to see that before you are under contract. The bureaus don’t move quickly and like most of us they don’t like to admit their mistakes. It is best to find out any potential problems before you are fighting for that Craftsman charmer in the perfect school district so that you can fix them now. Not checking your credit before you are under contract could mean you lose the home of your dreams.
2. The Loan Officer can help- Loan officers see hundreds of credit reports a month. They also know what their underwriters are looking for and many can share advice on how to fix the problems they do see. Heeding their advice can not only get you more house but can also get you a better rate. Better rate = less interest = more money in your pocket.
3. Know what you can afford- There is nothing worse than helping someone find the home they picture growing old in and then watching them crumble when they realize they cannot qualify for a loan to get it. For example, I had a couple that fell in love with a house. It had everything they were looking for and of the 13 homes we looked at it was the only one they agreed on. The home was listed at 200K- when we went to get them prequalified (they were insistent that they find the house first) they only qualified for 130K. Now 70K is not a big deal when you are looking at multimillion dollar homes, but when it is over a third of the budget it was a devastating blow. Every home we looked at afterward was compared to the home they fell in love with and none could even come close. As the deadline for their move crept closer they grew more desperate to find a place and started settling on homes I knew wouldn’t be right for them. I encouraged them to rent until we could find them the perfect home or they could improve their credit to a point that they could afford the home they actually wanted.
4. Stronger Contract- In a hot seller’s market the strongest contract wins. This doesn’t always mean the highest offer. Having a prequalification letter puts big biceps on your offer and even if your offer is less than competing offers, the fact that you have taken the time and effort to get prequalified can make it more desirable to a seller. No seller wants to have their home pending for weeks and then find out that the buyer can’t get a loan. That puts it back on the market behind everyone else and then suddenly potential buyers are asking themselves, “If homes in this neighborhood are selling in seven minutes and this one has been on for three weeks and is still available, what is wrong with it? Maybe I can offer them half!!”
5. It’s A LOT easier than you think - There is a big difference in the amount of paperwork needed for a prequalification and the closing of your loan. The biggest concern I hear from people when it comes to getting prequalified is that they don’t have time. Its 2018- there’s an app for that. Most mortgage companies have a website and an app for getting prequalified. There are some questions to answer honestly and some documentation to provide. And while we are on the subject- be honest with your lender. They will find out the truth. They will require evidence. I demand proof that my teenager has $20 when we go to the mall so I don’t have to foot the bill for her Hot Topic purchase. Don’t think that the company that is going to be lending you hundreds of thousands of dollars is just going to take your word for it.
Buying a home, whether it is your first or fifth can be daunting and challenging. I don’t want the home search process to also be heartbreaking. If you are just starting out or have been online stalking homes for awhile please give me a call and I can help make your next purchase your best yet.
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