OK. Youve made the decision. Youre ready to buy a house. Great! Youve got that dream home pictured in your head. Now all you have to do is find a Realtor, make your offer and move in. Right? Wrong.
Your first step should be to find a trustworthy mortgage professional. But thats not the fun part, you may say. Why start with a mortgage professional? In a nutshell, this can save money, time and increase your bargaining power.
Your mortgage broker is going to be able to tell you first if you can qualify to purchase a home at all. Second, if you are in the running for purchasing, he or she can tell you how much home you can qualify for. Think about it. Do you and your Realtor want to run around for a month or two worth of weekends, finally find your dream home, just to find out that you cannot afford it?! Thats a lot of time, and time is money (or at least a lot of wasted weekends). Wouldnt it be better up front to know what you can and cannot buy, zero in on that, and achieve that wonderful feeling of success? Of course.
Well, you may have already thought of all that. However, did you realize that the seller of your dream home may give you preferential treatment if youre pre-approved? The seller has a life too and time lines like the rest of us. They want deals that are going to work. They dont want their home under contract, just to have the deal fall through because the buyer cannot qualify! So, lets say you make a bid on a house and another party makes a bid at the same time for the same amount. The other bidder is pre-approved, you arent. Which bid should they accept? Obvious. Another scenario, lets say you (not pre-approved) make a bid and another bidder bids slighter lower but is pre-approved. Which bid would you accept?
And one last matter to cover, there are different levels of pre-approvals. The lowest level might be called pre-qualification and this involves the mortgage professional taking your information (income, expenses, etc.), putting it all together and letting you know how much home you can qualify for based on the numbers you provide. Another level of pre-approval is for the mortgage professional to run the loan through automated underwriting (getting more technical, here) to get an approval provided that all your info can be verified. The highest level would be running the loan through a lender and actually doing all the verifications. Obviously, the higher level of pre-approval gives you more to stand on and carries the most weight when bidding on a home. In any case, your mortgage professional should provide you with a letter stating on what level you are pre-approved.
Hopefully by now the picture is clear, call that mortgage professional BEFORE starting your house search. And maybe, just maybe, the process might even be fun.
Mark Courage is the owner and originator of Colorado Capital Lending, bringing thirteen years of mortgage experience and help to the home owner.