May 15, 2015

Getting Preapproved (Buying A Home, Part 1)

This is the first in a series of posts covering the 7 steps to buying a home.¬†For the inexperienced, it can be a scary process. For the experienced buyer and seller, it can be a hassle at best. I’ll put real estate into user-friendly terms to make the experience as painless as possible for you, no matter your experience level.

Reason #1:

Your lender is going to have some say in how much money you can borrow from them. This is true unless you’re a cash buyer, and then you should check your decision against your accountability partner for some outside counsel.

A good lender will also provide you with actions you can take to improve your credit score, or at least maintain your current credit score, over the next several weeks while you are home-shopping.

PRO TIP: Whatever you do, don’t open new lines of credit until the day after your home has closed, and don’t use any existing lines of credit until after closing. If you have to utilize some of your available credit, make sure you pay that much extra on the next month’s payment so your credit score stays the same.

Submitting a pre-approval letter along with your offer also gives your offer some serious weight with the sellers. Many of today’s sellers are requiring pre-approval letters before responding to offers.

Reason #2:

Let’s think about this from the seller’s perspective: You’ve gone to the trouble of cleaning your home beyond its normal, lived-in state; you’ve performed some repairs; you’ve possibly made some upgrades (that you won’t even get to enjoy for very long!) and you’ve vacated the house at last-minute notice for showings- taking the dog, cat and kids with you. Not only are you suffering the added inconvenience in your schedule, this may even cost you money if you decide to go out for a movie or to dinner while you wait for the potential buyers to finish looking at your house. You could make the argument that it’s rude to the sellers to inconvenience them if you’re not a ready, willing, and able buyer.

Why would a seller accept an offer on their house without knowing with absolute certainty that the buyers can afford the house to begin with? They shouldn’t. And they usually don’t.

Accepting an offer takes your home off the market, and makes your home practically invisible to other potential buyers.

Why take your home off the market for a wish and a dream (which is all the buyer has, by the way, if they’re not pre-approved with a lender already)? It doesn’t make sense to go house shopping without pre-approval.

Reason #3:

It keeps you level-headed about the purchase you’re about to make. Houses aren’t cheap, and while it’s fun to look at homes outside your realistic price range, it can lead to disappointment down the road.

Whether your goal is to live in a certain neighborhood or to own the most expensive home in Kansas City, it’s important to know where that purchase fits into your budget. Wise decisions aren’t always fun, but they end up costing less and are far more fulfilling in the final analysis.

Here’s a practice scenario:

When a buyer makes an offer on a house and it goes under contract:

The listing agent presents all offers (as required by real estate law) to the seller. If the seller agrees to the terms of an offer or has negotiated with the buyer to more agreeable terms, the property is placed in one of three states on the MLS: Pending, Show for Backups, or Under Contract. Most buyers only search for homes that are ‘Active’, so accepting an offer, even one with pre-approval, makes it invisible to most other buyers.

Put another way: if two identical offers are presented at the same time but one is pre-approved and the other is not, I bet you guess which one will most likely be accepted by the sellers …

While it’s not required, it’s definitely a strategic move on your part to get pre-approved. Doing so puts your offer in a more acceptable light with sellers, and increases your chances of landing the home of your dreams.

You may still think that getting pre-approval from a lender is a waste of time. That’s OK. Keep in mind though, that while you’re filling out pre-approval paperwork for your next home, another buyer may be submitting an offer, fully prequalified and ready to execute a deal.

For a decision as impactful as purchasing a home, why leave anything to chance?

Step 1 of buying a home is all about finances. This is true in Kansas City, Overland Park, Topeka, and beyond. Real estate can be fun when done right. I’m here to help.

We’ll circle back to finances again in a future post: Step 6 – Funding. Make sure you’re subscribed so you don’t miss a single step!

Up next: Step 2 in buying a home in Kansas City or beyond