Is getting Pre-qualified or Pre-approved the same thing and why should you do it BEFORE house hunting???
I’d like to share a quick story of a couple I know that went house hunting and joyously found their dream home! They put in an offer and it was accepted! They trot off to the bank to apply for financing and quickly find out they can’t qualify for the mortgage to buy their dream house. They are crushed and go home dejected. I’m sure we all know someone that this happened to at one time.
How could this huge disappointment have been avoided? If you guessed getting financially prepared BEFORE going house hunting, you are absolutely right! Home ownership is part of the American dream and buying your first (second, third, etc.) home is always a pretty exciting and potentially stressful time. If you do things in the correct order, it will be a much more enjoyable experience. The order to follow is this: Work with a lender and get preapproved, NOT prequalified. Getting prequalified is pretty easy and really is just accomplished by you providing verbal information on your debts and income to a loan officer so they can run some numbers. I’ve simplified the process but that is the jist of what happens.
As we all know, it’s easy to “forget” things and believe me, that will bite you in the backside later on. Getting preapproved is a much higher standard of mortgage qualification and requires pulling credit scores and you actually providing documentation on your income and debts. If you get preapproved, you most likely WILL be able to close on a home purchase, provided you don’t make any large purchases right before closing. I know, who would do that, right? Trust me it happens.
Don’t buy a car, furniture or any other big ticket items on credit right before closing for the simple reason that your lender often will pull credit AGAIN before you close and if something shows up that puts your debt to income ratio out of whack, the home purchase could fall through at the last minute. I’ll tackle what debt to income ratios are and why they can make or break a purchase, in a future blog….so stay tuned!
Go through the extra steps to get preapproved before you even look at one house. You want to know for sure you can actually afford a certain price point before you start looking at homes! There’s nothing worse than loving the homes in a certain price point and finding out you can’t afford it and having to downgrade to a lower price point….it takes the fun and excitement right out of the home search. Don’t let this happen to you. Do things in the right order and go find your dream home!