Why do I need to be preapproved?

Why do I need to get pre-approved for a loan to buy a house before I start looking?  The answer is not “because your real estate agent will not put you in her car and drive you everywhere you want to go to see houses without it” (even though that may be true).  The answer is better answered that it is beneficial to you as buyer to know, first of all, that you have the credit worthiness to qualify for what you want to buy, and secondly, that you are not looking at homes you cannot afford to buy.

Historical Reasons to Get Pre-Approved to Buy Your Home

You are probably aware that lending rules have tightened since the market crashed in 2008-2009.  For example, credit worthiness used to be less important than a down payment.  So if you were putting down fifty percent of the purchase price, for example, your low credit score could be ignored.  Or perhaps a family member could co-sign and your credit score could be ignored.  NOT ANY MORE!  Under new lending guidelines, there are minimum credit score guidelines for all borrowers, regardless of the co-signor and the down payment.  Most people do not know this, so they hop in the car with their agent, find the perfect home, and then find out they cannot buy it under today’s guidelines.

Just Started a Business?

Suppose you know your credit score, which is good, and your gross income, which is also good, but you are self-employed, taking advantage of every tax deduction available on the planet Earth.  So your gross income is actually four times your net income-great, right?  Well, not if you are trying to buy a home.  And if you just started that business, then it does not even matter whether your gross and net income are actually close to the same – there is no track record and therefore no loan.

More Valid Reasons to Get Pre-Approved

There are other reasons to meet with a lender before you start your house hunt.  One is that there may be a program for you with incentives.  Perhaps you are a first time homebuyer.  Or perhaps you are purchasing in a rural area.  You may be entitled to one hundred percent financing or tax credits.  First and foremost, pick a lender who knows your market.  If you are buying in Clayton and your lender mainly does condo loans in downtown Raleigh, he or she may not be the right fit for you.  Your agent can help you with a referral to a qualified lender with a good track record.

For questions or comments, email Laurie Howell, lkhowellnc@gmail.com, or visit her website at www.LaurieHowell.com.