Prevent Home-Buying Headaches - Get Loan pre-qualification !

Loan pre-qualification can prevent home-buying headaches

President's Message

Chris Sloan

Because most Utah home buyers purchase real estate using a mortgage, one of the most important steps in the home-buying process is securing affordable financing for your Utah home purchase. And with today's tighter lending standards, knowing that you'll be able to secure a mortgage with favorable terms and conditions is more important than ever.

The earlier you know where you stand in terms of your home financing, the better. It can be frustrating for buyers to find the home of their dreams only to learn they don't qualify for the mortgage they thought they would, especially if the buyers have spent money on a home inspection, survey or other due diligence.

One way to prevent these types of problems is to get pre-qualified or pre-approved for a mortgage before you shop for a home.

In basic terms, a pre-qualification is when a mortgage lender will tell a buyer before his or her official application how much he or she can afford to borrow. This amount is usually determined by the buyer's income, current debt, estimated down payment and credit history.

Even better is a pre-approval where a lender will commit to lend the money as long as the buyer still qualifies when he or she is ready to borrow. Securing a pre-approval is a little more difficult than getting a pre-qualification because more documentation is required. Nevertheless, a pre-approval provides more certainty that your financing will be in place when you need it. Once pre-approved, you may even be able to lock in your interest rate so you don't risk having your financing costs increase while you're shopping for a home.

One of the biggest benefits of pre-qualification or pre-approval is that you will know your price range as you shop for homes. Not only will this save you time since there will be fewer properties to consider, but it will make your purchase offer look more attractive to a seller because it is less likely that your financing will fall through. Sellers will know they are working with a serious buyer who has taken the time to get his or her financing in order.

Knowing a price range also helps you decide what home features are most important to you. For example, when you have a price you cannot exceed, it may be easier to decide that you don't really need granite countertops and would rather put the money toward having a garage. Just knowing how much you can afford helps you distinguish your wants from your needs.

When you talk to a lender early in the process, you will also be able to discover, and possibly solve, any issues that could prevent you from getting a loan. For example, if an incorrect item was listed on your credit report, you would have time to contact the entity that made the mistake. Other problems, such as an insufficient down payment, could also be resolved by being discovered early in the home-buying process.

As you work to get pre-qualified or pre-approved, you'll want to shop for a lender and a loan. One way to start is by getting the names of three Utah lenders with whom your Realtor has previously worked. Talk to each of the lenders and compare their costs using the Good Faith Estimate that each will provide to you. If you are considering using an out-of-state mortgage lender or an Internet broker, be particularly careful when comparing costs because their fees can be higher.

As you shop, ask the lender questions. The National Association of Realtors suggests asking the following questions when shopping for a loan: "What is my credit score? Can I have a copy of my credit report?", "What is the best interest rate today? Do I qualify?", "Is the loan's interest rate fixed or adjustable?", "What is the length of the loan?", "What are the total loan fees?", "What is the total monthly payment? Does this include property taxes and insurance?", "Is there an application fee? Is so, what is it, and how much is refundable if I don't qualify?", and "Are there any prepayment penalties? If so, what are they are how long do they last?"

Also remember that you don't have to spend the amount for which you are approved. Make sure that you are comfortable with the monthly payments and are confident they will fit in with your lifestyle, regardless of how much the lender says you can borrow.

For more home-buying tips and other information about the benefits of pre-qualification and pre-approval, contact your local Realtor.

Published Monday, June 29, 2009 6:21 PM by Chris & Berna Sloan