You have been secretly watching HGTV, the neighbors in your building are stomping around upstairs again, and you are tired of paying rent month after month and having nothing to show for it. So on a lazy Sunday afternoon you see an “Open House” sign at a cute little bungalow and stop to look inside, “just for fun”. You find some websites and pore over the pictures of listings, ooh-ing over remodeled kitchens and laughing at the bad pictures of unmade beds. The next weekend you go online, look up open houses and make a list of homes you could see yourself living in. You don’t know how it happened, but all of a sudden you are “in the market” for a home.
As you visit these open houses, you will encounter many agents who are hosting these events. They all have different personalities and styles of approaching you, but you begin to notice that they all get around to asking you the same question eventually. That question is some version of “Have you talked to a lender about a mortgage yet?”
Many Buyers new to the market are surprised and taken aback by this question. They feel that the agent is being nosy, and wonder; “How exactly is that any of their business?” Open Houses are for the public, right? Finances, after all, are a very private subject, right? You figure you will talk to a lender after you find the house you want- there is no need getting ahead of yourself, right?
The REALTOR® who is asking about the pre-approval is actually wanting to save you, and everyone involved in the process, a lot of time and frustration. Here are a few reasons Real Estate agents want to make sure you get your pre-approval before you get too far into your house hunting.
- Don’t fall in love with a house and then go looking for a pre-approval letter. Buyers who are serious and looking for homes are looking at the same houses you are. The one that stands out to you as a great buy most likely appeals to them as well. And they have a pre-approval already. While you are calling lenders trying to get one to work up a letter for you, those other Buyers are in their agent’s office writing an offer. By the time you get your pre-approval, that house you fell in love with may very well be under contract with a Buyer who was better prepared.
- You need to know your budget. This seems like a no-brainer, but just plugging numbers into a mortgage calculator won’t give you an accurate representation of what you can afford. By the time your lender is through with the approval process, you may find that you can afford a different amount than you thought. As rates fluctuate, so does the amount of mortgage you can obtain.
- Related to the previous point, you should not be looking at houses you can’t afford. If you fall in love with a home and then find you have to look at less expensive ones, you will be comparing them to the higher-priced houses you have already seen, and they may not compare favorably. Don’t set yourself up for disappointment.
- You might be able to afford MORE home than you think! Rates are low, and Buyers are often pleasantly surprised to find that they can buy more house for the money than they expected. If you looked into a mortgage when rates were higher, you can likely be approved for more when rates have gone back down.
- You might not be able to purchase just “any” home, depending on the type of loan you qualify for. If you are getting an FHA loan, for example, some houses are not available to you because of their condition. If they would not pass an FHA appraisal, the Seller won’t take your offer because they cannot or will not do the necessary repairs for it to pass. Looking at these homes would be pointless, so it is best to know up front if you can’t buy them. 1st time homebuyer programs, TOTO, and USDA loans all have their unique parameters, so finding out what kind of loan you are dealing with is imperative.
- Sometimes when a lender goes to issue a pre-approval they discover things in your credit history that you may not know about. A credit card that you and your ex had in common may have never been paid off. Old medical bills and student loans rear their ugly heads. Mistakes are made in credit reporting that need fixing. Someone with a similar name might have their crummy credit showing up in your report. And sometimes credit needs a little repair before a mortgage can be obtained. These things happen all the time, and your lender should be there to help get it all sorted out. Finding out these things sooner is much better than later.
- You want to be taken seriously. Buying a house is a big deal, and you need to have good people on your team. Since your Agent’s fee is most likely going to be paid by the Seller’s Agent, why wouldn’t you get the best Agent you can find? If you want a good REALTOR® to take you seriously and make you a priority in their business you have to prove that you are not out wasting everyone’s time and effort. If you have found an agent who will open doors at the drop of a hat without asking you to produce a pre-approval, then you have found a rookie, or an agent so desperate for business that they will be at your beck and call, whether you are qualified or not. Why would you want an agent who clearly isn’t busy or experienced enough to ask the right questions?
So, go and ask your favorite REALTOR® which lenders they prefer, and go get yourself the biggest and best tool you can have when it comes to buying a house, your pre-approval letter. Then let’s go look at houses!