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Pre-Approved before looking?
Hello all,
I'm new to the Nest (was on TK before our wedding), and I have lurked on here awhile and you all seem very knowledgable. With our wedding money added in to our down payment nest egg, my H and I feel like the time is right to start looking for a house. We did our budget, and we know what we would feel comfortable with paying on a mortgage at the average rates.
My question is: Should we get pre-approved for a mortgage before our search? We are currently living in my grandmother's house (she lives with my parents now due to health issues, but she graciously offered us to stay in her house if we did some upkeep and updating to the place and paid the taxes, etc.). We are not in a hurry because of this, and we plan to search until we find something we really feel is THE house for us. So it may be many months before that even happens. I feel like pre-approving may be premature right now because of that.
Also I have heard that getting pre-approved dings your credit score. We both have excellent credit, and I don't want to have marks on that if we don't find a house until, say, a year from now and have to reapply. Is there any truth to this? Thanks for any advice!
*This is not legal advice*
Re: Pre-Approved before looking?
You should definitely get pre-approved before you begin looking and should look for a buyer's agent to help guide you through the process of looking for a house. Even if it takes you a year to find a house, you need a pre-approval to be taken seriously in the process and want your pre-approval to be ready to go when you find a house to make an offer on, whether that is next week, month, or year.
yup to all of this. we're in a similar position as you and have applied for pre-approval with two mortgage brokers.
yes, the inquiry(ies) will temporarily knock your score down slightly, but not enough to matter if you have excellent credit.
also, if you shop around like us and have a few inquiries at once, most places will not look down on that as they will figure out you are shopping for a home. also, if the inquiries are all for mortgages and within 30 days of each other, it should not hurt your credit.
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not sure if it varies by state. in ours, our realtor and mortgage brokers said that the broker can just reissue a letter w/pre-approval amounts as needed until we find a place. it's even advisable for them to reissue letters for each offer so that the buyer doesn't know the true top limit of what the banks will let you borrow.
now if your credit situation changes drastically for the worse for some reason while you're looking, then the bank may still deny your loan when you apply for it despite having pre-approval.
this is an option depending on your market. if you are in a very competitive market, most sellers won't take prequal that seriously and definitely will consider someone pre-approved as better than someone as pre-qualified. we are shopping within the hottest price bracket in a down but still quickly-moving market, so that's the reason we're getting 2 pre-approvals.
if you've started working w/a realtor, he/she should be able to tell you what's the best move for you and your market. ours has been great in answering all of our questions.
ETA: the 2 pre-approvals are a little overkill but we're doing it as a negotiating tool (on our realtor's recommendation) for when we finally do find a place and need the loan.
I would say for us it is a very uncompetitive market and very slow moving (small town Ohio-not too many people moving there) and most people don't hire a realtor as a buyer. I do want to be taken seriously as a buyer though, so it may be worth getting preapproved now. I'm assuming that if we were to need to reapply later because an approval expired it wouldn't be too bad for the credit score. I didn't think that preapproval could hurt the score too much, but someone told H that and he is very protective of his credit score.
get a realtor. The seller's realtor is working for them and looks out for them. you should have someone look out for you. The buyer does not pay the realtor anything; it all comes from the seller so there is really no reason not to.
Agree. You should use a realtor--using the seller's agent to negotiate is not a great idea. You want someone who is going to fight for you--not a dual agent (which is what would typically happen if you only negotiate through the seller's agent).
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if you want to be taken seriously as a buyer, get a buyer's agent. in most cases, their commission will be paid by the buyer anyway.
it seems your market is the complete opposite of ours, but it cannot hurt to have someone with your best interests in mind. it's harder to get into see some properties here without one. also, realtors often have access to extra information on MLS or through talking to the seller's agent.
Oh gosh, please please get a buyers agent. You won't regret it. Also, getting pre approved is a-okay. When we ended up buying our house, our mortgage company sent out letters to the credit bureaus to let them know that the inquiry on our account was for home-buying purposes.
Buying a house is a process and it tends to take a while. I don't think you need to worry about the pre-approval affecting you. It will be fine.
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It's really important to get pre-approved! Especially if it is your first home. You want someone who will walk you through the lending process from start to finish. Where do you live? I am a mortgage banker in WA and the mortgage person is the pilot during your transaction. Make sure you like the person and they are willing to put in the effort to explain the details to you. If you need a good recommendation for a lender in your area ....I can research it for you and find you a great one.
I must have gotten bad advice myself as I am very confused by some of these answers (or maybe this differs by state?). The OP mentions that she might not be looking to buy until a year from now. When I first spoke to a mortgage broker (the same guy I used for the financing and re-financing for my current condo) I was a year out in the process, too. He gave me an idea of what we would qualify for based on on current income and DP (of course, what they tell you what you will qualify for seems to be insanely ridiculous). He specifically said that I was too early in the process to get a pre-approval. Yes, there is a slight ding to your credit (which is basically negligible), but the pre-approval is only good for a certain amount of time and thus mostly for serious buyers. I contacted a second broker for another opinion and was told the same thing.
Early in the process, I would start thinking about my needs/wants in a property, start identifying locations, get a buyer's agent to start sending me MLS listings meeting my requirements- and talk generally to banks/brokers about financing. I really think it is most important to look at your own budget and see what you are comfortable paying on a monthly basis- because this is very likely much less than the banks will lend you. It sounds like the OP has already taken this most important step- I don't think a formal pre-approval is necessary at this time. But I could be wrong.
@chicagobride, you're right. i'm not completely clear on where the OP is in the process after re-reading her post. i just assumed she is where we are, which is actively looking at properties that we are ready to offer on. we just know in our market, it may take 6 months to over a year to find something we like and have an offer accepted.
OP, if you haven't done the things chicagobride has mentioned, please do. a great, objective book to start with is home buying for dummies. mortgages for dummies is great, too. it discuss all the suggestions in this thread (and more) and gives objective pros/cons to each thing such as pre-qualification/pre-approval, whether you should work with a buyer's agent, etc. it also helps you calculate your budget, figure out if renting or buying makes more financial sense for your current situation, and come up with a needs/wants list.
also, even if don't end up using a buyer's agent and aren't exactly ready to offer right now on a house if you found a great one, you should interview some agents in your area. just in the initial meetings w/agents, they answered a lot of questions specific to us, our market, and our state. even the ones we didn't go with were very helpful and were very happy to answer our questions/educate us on the typical process here.
Sorry for the slight post and run there. Had to do some actual work
We have looked through some listings and gone to a few open houses. We have already figured out our budget (very conservatively I might add-we both want to have a good cushion in our monthly income) and made a list of needs/wants/dealbreakers. Since we are not paying rent in a traditional sense, just utilities and property taxes and maintenance expenses on my grandma's house, we are not in any hurry, so we plan to take some time to look and find the best fit and the best deal. That is why I was concerned about the time length. However, we are ready to make an offer in the very near future if we find what we are looking for.
Being that this is a small town, I know several realtors (they are friends of my parents) and they told me to let them know what we are looking for and they will pass the details of any listings they have that they think we may be interested in. Very informal that way. It may make sense to enlist one as a buyer's agent however.
I really appreciate all the advice, and I definitely will check out the books you mentioned. I am a total newb when it comes to homebuying, but I am trying to become more informed as we start this process.
Because of this, I stand by my original post that you should get pre-approved and a buyer's agent. If the right property comes along, you will be ready to act.
I agree with getting a buyer's agent. A good one will go to bat for you not only when dealing with the seller's agent, but also if you have any questions/concerns with the company handling your finances. Find out how long a pre-approval is good for in your area. Where I am it was only good for 3 months and then we would have to do all the paperwork again, so getting it a year out from when we expected to be buying would have been pointless. Ask about a pre-qualification. It's done without pulling your credit and should give you a good idea of what you can afford/what an institution would be willing to lend you.
If you need a loan to purchase a home, then the.most.important.piece is to get the loan--you won't have any house without one. So that being said, starting a relationship with a solid lender is an important step. Get pre-approval letters and get a few of them for different amounts. For example, if you end up offering $250,000 to purchase and your pre-approval says up to $275,000 you'll be tilting your hand.
H and I were house hunting for 8 months and we got a pre-approval right in the beginning. If the buyers require an updated letter you can just go back to your lender and ask them for a new one. They may or may not run your credit again, but in the end it's not going to matter too much because you've already got the lender's preliminary ok.
I would highly recommend a buyers agent, a good one will be your ally and shield you from bad deals and potentially dangerous/illegal situations. I don't know where you are, but in New England every house is 100 years old with 100 years worth of repairs and modifications that aren't necessarily safe or legal. Our agent saved us from so many weird and scary situations, she was worth every penny. Good luck!