I am sticking to answering questions that Darcy and I hear quite often. We are hearing some of these questions often enough that the word must not be getting out. I completely understand that these are pretty basic questions, important, but to someone in the Real Estate industry pretty basic. I am not a lender, so I am answering these questions as a Real Estate Agent, not a Mortgage Broker.
I am prequalified, isn’t that the same thing as being preapproved for a loan? No, not really. Lenders in a prequalifying letter are really just looking at an overview of your credit and income. Preapproval goes into much further detail into things like your income verses your current debt as well as your credit history.
I have a preapproval from a lender, so that means that we’re good to go, right? Again, this is a no, not really answer. Since the recent credit crunch, lenders are being extremely picky about a person’s credit and ability to repay the loan. The preapproval helps, but still there are no guarantees until your loan is funded and you are on title to the house.
Why do Realtors stress the importance of getting preapproved before looking at homes? This is really a two part answer, one we as Realtors only get paid when you actually buy a house. In the mean time we have to pay all of our expenses. With that in mind Realtors want to use their time helping those who are ready, willing and able to buy a house.
The other part of the answer is really to help you know what to look for. I know that when we purchased our home, we looked at a lot of great homes that we really wanted, only to come to the realization that there was no way that we could afford to buy those homes. Your time is valuable, and you want to find the best house that you can buy. By focusing only on homes in your price range it is an easier process to find the right home for you.
Which Lender should I use? This is something that is up to you. We will gladly provide a list of great lenders that either we or our clients have used and have been well cared for. We are lucky in our area and have several very good lenders, which is a good thing for our clients.
What happens after the paperwork is submitted? No major purchases on credit and limit use of charge accounts. Until after you have signed the paperwork and it has recorded, we recommend that you do not use your other credit lines if at all possible.
By all means, DO NOT open up new lines of credit, buy a car or make any other major purchase on credit. I know that there is a huge temptation to go and buy new appliances, furniture and even flooring for the new house. Doing this can mess with your Debt to Income Ratio, which is a major factory in loan approval and can cause you to not be qualified for a mortgage. It also can affect your credit score with also affects mortgage loan qualification.
Right now mortgage companies seem to be looking for reasons not to qualify people for mortgages. Deals have failed at the closing table due to the mortgage company disqualifying buyers at the very last minute. The mortgage company typically will pull your credit just prior to funding the mortgage, so any changes can and will kill the deal.
Other tips: check credit report annually, this will not stop identity theft, but it can lead to early detection. Take ownership of your FICO score, by that I mean be proactive, by paying attention to your credit card statements, check your credit reports, and watch for unusual activity. Question any charges or accounts that you do not recognize, make sure that they are legitimate.