I must have received five calls today from potential buyers, who wanted me to run out and show them a home. Upon a bit of questioning, not one of them had taken the all-important step of speaking with a lender.
A recent experience served as a powerful reminder of the importance of this matter. For about 4 weeks, I recently worked with a young engaged couple, whom I have truly grown to care about. After our first time out looking for homes, they obtained a pre-approval letter from a ‘friend of a friend’ for 300K.
I referred them to the ACORN housing program because it often helps first time buyers by offering lower interest rates. My buyers worked through their program, a process which took a couple of weeks. All signs still looked good at this point.
A few days later, the loan officer called us and indicated that the amount of debt noted on their credit reports was extremely high, and he would only be able to approve them for about 230K. Since they did not want to purchase a one bedroom unit, their dreams have been put on hold.
To make doubly sure of the situation, I sat down with this couple and reviewed their credit reports and their budget, line by line. What I saw was a young couple that has been living beyond their means for years, and was starting life together with about 80K in debt. This was certainly not a good environment to purchase a home, since they had no savings.
I realize that most agents would not go this far, and perhaps I did because I really enjoyed them. Perhaps it’s because I’ve worked in loans, but I know that all pre-approval letters are not created equal. The first one given them for 300K led us all to assume they could get a home. It became painfully clear that this lender had not in fact, reviewed this credit reports, but had merely sent a letter with no due diligence.
Make sure your loan officer or lender really reviews your credit, your income, and your assets carefully. It’s not fun finding out you can’t afford it after 3-4 weeks of home shopping, and getting excited about a purchase.
This was also a vital reminder to me, as well that it just isn’t smart to hope shop until the lending piece is done. I frequently hear things like ‘it won’t be a problem.’ But I see it everyday. It is harder to get loans, even for well-qualified buyers. The rates of loans have gone up substantially in the past two months, often pushing potential buyers out of the market.
I don’t want you to go through what this couple did. Do your financial homework first. That way, when we find a home you love, you will be ready to make it work!
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