I remember when Julie and I bought our first home. We really weren’t sure how much we could afford-and how large of a loan we could get. I think both of us were a little nervous. As we went through the pre-qualification process, we were put at ease because it helped us understand exactly what kind of loan we qualified for and what the payments would look like.
Fast forwarding over fifteen years later, it might seem silly for us to get “pre-qualified” for a loan but even experienced buyers should get pre-qualified. The reality is that if you’re really serious about buying a home, you are going to have to provide some level of financial information to get the process started. Getting pre-qualified kicks-off the inevitable review of financial papers and can give you time to address issues before you put in an offer.
Credit Report Errors
As a person who sees credit reports daily, I’m sure it won’t shock you to hear that they have errors. Some of these errors can be damaging to your credit score-which in turn affect the loan products and interest rates you can be offered. If you’re not checking your credit report regularly, the pre-qualification process can help us identify issues early on so you have time to correct your report and get into the loan product/rate you really deserve.
Credit Report Truths
At times, there are things that show up on our credit reports that we either didn’t know about-or somehow just missed. A classic example would be a random medical bill that was sent to a place you lived five years ago. Just like credit report errors, these situations need to be addressed. Otherwise, it has the potential to affect your credit score, and as a result, your interest rate.
As a loan guy, I can tell you I live and breathe by Debt-to-Income (DTI) ratios. The amount of debt you carry, relative to how much money you earn, greatly impacts how large of a home loan you can have. As our lives change, the amount of debt we carry also fluctuates. It’s important to evaluate where your DTI is at whether you are an experienced or first-time buyer. You might be surprised what you find.
Shopping with Money is Better
When you are pre-qualified for a loan; it’s almost like shopping with real money. It also gives you a price point to work from, so you’re looking at homes that you can actually buy. Sellers typically take buyers more seriously if they know that you are in a financial position to afford the home. A pre-qualification letter can give your offer an advantage over other buyers, and many Realtors will not submit an offer without one.
Bye-Bye Earnest Money
As part of making an offer, buyers often give a sum of cash that the seller gets to keep if the deal doesn’t go through. If you make an offer on a home, and you cannot qualify for the loan amount you need to purchase it, the seller will get to keep your money if you notify them after key dates in the contract. Getting pre-qualified can help you avoid throwing away your money…instead of using it to buy a home.
Question about this? I am here ready to help!