If you’re thinking about buying a home, there is a lot to do to get prepared. Studies show buyers are researching 12-18 months in advance of purchasing. With this much lead time, we often get the question … “When should I get pre-approved?” We advise our clients to use an experienced lender as a resource during the research phase of the home buying process and then again when they are ready to seriously start to look. Here’s why.
Have a Conversation with a Lender During the Research Phase
You don’t have to pull any credit reports or get together any documents to have a conversation with a lender. This is best done as early in the process as you can. Even if you are just thinking about buying, you’ll want to get an idea how much you need for closing costs, how much you need to save for a down payment and how much you can afford. This way you don’t spend months researching your move only to find out you need to take it in a different direction or that you could have bought months earlier. Speaking to a lender doesn’t require any obligation on you part and it doesn’t affect your credit. Think of it as an informational interview.
Lending Rules Change All the Time
Even if you’ve purchased a home before, you’d be surprised how much different lending rules are today than they were. Currently, lending rules are more lax than they’ve been in months past and buyers don’t have to put 20% down anymore. Find out the latest rules and how they’ll apply to you. You might be able to buy sooner than you think.
A Conversation with a Lender vs a Genuine Pre-Approval
Having a conversation with a lender is the first step in the home financing process. It is more of an interview to get your questions answered and find out what you can do to get your financial house in order. Getting a genuine pre-approval from a reputable lender is the next step.
A genuine pre-approval means the lender has run your credit, seen your bank statements and pay stubs and an underwriter (the person who makes the decision whether or not to approve the loan) has seen your file and issued a conditional approval. A conditional pre-approval from an underwriter means all you need to process and fund your loan is a purchase contract and an acceptable appraisal.
Get Pre-Approved Before You Start Seriously Looking at Homes
Get pre-approved before you start seriously looking at homes. When you think it’s time to contact a Realtor, that’s the time to get pre-approved. Getting pre-approved before you look ensures you are prepared should you find a home and you know for a fact exactly how much you can afford. Not knowing for sure what you can afford is a good way to set yourself up for disappointment.
I had a client who thought they could afford $50k more house than they could actually afford. We looked at a few homes and then they decided to get pre-approved. When they found out they could afford $50k less, it was quite an adjustment for them to look at less expensive homes. It was a frustrating experience that took them a few weeks to overcome. Sadly, it was an experience that didn’t have to happen.
Can’t I Just Wait Until I Find a Home to Get Pre-Approved?
You can, but you run a big risk of losing the house. In this market, sellers are requiring pre-approval letters in order to even respond to an offer. Submitting an offer without a pre-approval raises a red flag to a seller and is a red flag that shouldn’t have to be raised. A genuine pre-approval can take a few days to complete and that’s if you have all of your documents readily accessible. The best homes can be gone in a few hours and if the seller gets an offer they like, they won’t wait for you to get pre-approved.
We had another client who insisted they had great credit, plenty of income and assets and would have no problem getting a loan. We looked at homes with them for a while and they found one they liked. They called a lender and the lender found a mistake on their credit report, which was causing their credit score to drop. The mistake was correctable, but it took a few weeks for it to get sorted out. In the meantime, the house they wanted sold and they lost out. If they would’ve gotten pre-approved at the beginning of their search, they would have avoided this problem altogether.
I Know What’s on My Credit Report so I Can Wait to Get Pre-Approved
Though monitoring your credit can be helpful in catching certain errors, it doesn’t tell the whole story. The credit report a lender will run is much more detailed than any report generated by a credit monitoring system. A lender’s credit report covers a longer period of time and goes into more depth. So, what you’re seeing through a credit monitoring system might not be the same thing a lender will see.
What if It Takes Me a While to Find a Home?
That’s ok! Pre-approvals don’t expire. They might require updating of some documents, but they don’t expire.
You Have to Get Pre-Approved So You Might as Well Do it Before You’re Under a Time Constraint
You have to get pre-approved anyway, so do yourself a favor and do so before you are under the gun to get everything done so you don’t lose the house you want. I’ve seen this scenario too many times and doesn’t have to happen to you. Lenders are asking for more documents than ever before. Give yourself the time to gather the documents and you’ll thank yourself later.
Considering Buying a Home in Austin?
We can help – even if you’re not close to being ready to start looking for a home. We specialize in buyers and know home buying is a process. Let us help save you hours of research and customize a step by step plan for you to prepare for your purchase. Check out our Austin Home Buyers page for more info about our unique home buying program. Then, fill out our Buyer Survey, email us at info@11OaksRealty.com or call us at (512) 827-8323 to schedule a no obligation consultation.
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