Should I Get Preapproved for A Mortgage Before House Hunting?

We’ve all likely heard the story, maybe at a cookout or in the break room at the office.  The homebuying nightmare of being a week away from closing on the new, beautiful home, and then someone, unfortunately, heard from their lender, the bomb drop of “we may have a little problem.”  It could get worse from there.  Maybe you have already sold your current home and must be out by Friday. Hello Holiday Inn? Perhaps the moving crew has already been scheduled, and if you cancel, you must pay a fortune to push them back a week or two.  And if any of this chaos occurs in a tight housing market, it can turn into a stressful disaster. If this happens to you and a seller has a tight schedule for closing on their next home, has their moving trucks scheduled, or maybe has backup offers that are higher than yours, they may not be so cooperative.  These situations can worsen if you have kids and have Goofy, the family dog, and a fish tank.  They’re stressful and turn that extraordinary event of purchasing and moving into your new Dream home into chaotic times full of stress and sleepless nights.  Don’t do it.  So yes! A solid argument can be made that most if not all buyers obtaining financing should obtain a pre-approval before they decide to write their first offer.

So, what happens if we run into last-minute financing problems and are under contract to purchase our new home? 

Ideally, your lender can quickly fix the problems so the situation does not cause too much delay or stress. The seller of your new home can charge late closing fees of $100-$300 per day (based on the terms of your contract), Ouch!  They can also issue a Notice to Perform, giving the buyer 24-72 hours to release all purchase agreement contingencies. With it, the entire earnest money deposit is held by escrow or the settlement attorney.  This means if the buyer must cancel after the contingencies are released, the seller can keep your entire escrow deposit.  Finally, if you are not ready to close escrow on time, the seller can cancel your contract and put the home back on the market or accept other backup offers.  This is all Very Stressful, Not Fun…and can be avoided by obtaining a Pre-Approval before you write your offer on your new home.

Pre-qualification letters and Not all Pre-Approvals are the Same!

Ok, so I’ve sold you on the idea to Get Pre-approved before your write your offer.  But you might ask, so what’s the difference between a pre-qualification and a pre-approval, and are all pre-approvals the same?  Different lenders, banks, and mortgage brokers may have different versions or interpretations or conditions of pre-qualifications or pre-approvals.  Yes, some are not worth the paper they are printed on, so you want to make sure you are working with a reputable mortgage broker or lender. And that they have thoroughly reviewed your credit report and income documentation before issuing your pre-approval letter.  A pre-qualification letter can be issued based on a preliminary review of information without the application being reviewed by underwriting or processed by one of the leading industries’ automated underwriting systems (AUS).

Do yourself, maybe your spouse, or the kids and family dog, cat, and aquarium fish a Big Favor…. Get Pre-approved Before you start writing offers on your new dream home.